Stock Audit and Valuation
Stock audit or inventory audit is a term that refers to physical verification of a company or institution’s inventory assets. … Every business institution at least needs to perform a stock audit once a year to update and ensure that the physical stock and the computed stock match.
Every business institution at least needs to perform a stock audit once a year to update and ensure that the physical stock and the computed stock match. A stock audit helps correct discrepancies between the physical stock and book stock can be corrected.
1. Why is a stock audit important?
There are several key reasons why an institution needs to perform a stock audit, including:
- Identify the slow-moving stock, deadstock, obsolete stock, and scrap
- Find out discrepancies between book stocks and physical stock
- Update the physical stock that matches book stock
- Make sure the proper preservation and handling of stocks
Stock audits is also an important factor in determining the benefits that should be offered to institutions. These are the key benefits of stock audits:
- To reduce cost and bottom-line
- To prevent pilferage and fraud
- As information of the accurate inventory value
- to reduce gaps in the inventory management process
- As special arrangements for third party opinion, including for agent warehouses
- As a good control mechanism in running the business
2. How to perform stock audits?
According to squareup.com, in performing stock auditing, there are several procedures that could occur, including:
- Cut-off Analysis – the process where an auditor(s) examine the company’s procedures. This involves the test of the last few receiving and shipping transactions before conducting the physical count and transactions that follow it. This makes sure that they are fully accounted for.
- Physical inventory counting – the process of counting every piece of inventory assets to account for them all. An auditor usually uses technology like a bar code scanner to physically count each item.
- Inventory layers – a process taken if the company does inventory using FIFO (first-in, first-out) or LIFO (last-in, first-out) to make sure that the recorded inventory is valid
- High-value item inventory analysis – another term used for ABC Analysis that refers to the grouping of A products, mid-tier are B, and low-value is C. It is time-saving and helps to better manage a stockroom.
Inventory-in-transit analysis – an analysis to track the time between the date of shipment and the date of receipt when materials are moving between two locations or more. This audit helps to make sure that all the items are not lost and safe while in transit
Freight cost analysis – a process to determine shipping costs and the costs to get products from one place to another
Finished-goods cost analysis – the inventory which you have completed and are ready to sell is known as finished goods. An auditor then analyzes the value of the inventory for the current accounting period
Reconciling items investigation – an important process that is taken when discrepancies are found between the inventory counts and the actual amounts in the warehouses. The auditor examines whether or not there are unmatched amounts and then makes adjustments to the record.