In simple words, the stock audit means physical verification of inventory; it may also involve the valuation of inventory depending upon the terms of reference. An inventory audit is considered a generally accepted auditing procedure. Stock Audit or Inventory check” is a physical verification of quantities and conditions of items held in the warehouse. The reason behind this check is to know the position of existing stock and is independently checked.
In legal reference, a Stock audit is a statutory process which every business entity is required to perform at least once in a Financial Year. The stock audit process mainly involves the counting of physical stock present in the specified premises and verifying the same with computed stock as maintained by the company. The intention and purpose behind executing this is to rectify the discrepancies present in the booked stock when compared to physical stock by passing necessary adjustment entries.
Meaning of Stock
Inventory normally comprises of
Purpose of Stock Audit
An institution must perform a stock audit to:
Benefits of Stock Audit
Important aspects of Stock Audit
According to the Guidance Note of ICAI on Stock Audit, following are the important aspects of Stock or Inventory Audit.
Evaluation of Internal Control: It is the separation of inappropriate or conflicting functions and adoption of standard methods to record the stock movement and cross-check the data generated by various departments. Under this evaluation, the auditor also checks specific controls over issues, receipts, physical stock and calculated inventory in records.
Verification: Management holds responsibility for the physical verification of stocks. Under the stock verification process, the auditor is responsible for acquiring enough & reliable audit evidence to validate the declarations made by the management about the Existence of stock, Ownership of stock and Valuation of stock.
Who appoints Stock Auditor
Stock Auditor performs its audit on the behalf of the bank from which the auditee takes working capital loan. The applicant should have post-qualification practicing experience of at least 3 years with at least 2 years’ experience in stock audits in different types of industry/sector. In case of firms, the experience of the partners shall be considered as the experience of the firm. Stock auditor is quarterly audit under which auditor mainly examines the certain things:
How to Perform Stock Audit?
Role of Auditor & the Stock Audit Process
Process should perform by the Auditor while conducting stock Audit:
The concept of Matching forms the backbone of ITC (Input Tax Credit) under the GST regime.
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