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What are Inventory Audits?

Inventory audits check to ensure that financial records match a company’s inventory records and that those records align with a physical inventory count. As part of that physical count, employees go through every item in the warehouse, typically with the assistance of technology that adds up and records products on hand. Audits add another piece to this, bringing in a third party to confirm not only the quantity of inventory but also its quality and condition — and identify any instances of theft, damage, or misplacement.

Why are Inventory Audits Required?

Stocks are the most valuable asset for any business and also highly susceptible to pilferage, damage, expiry, and wastage . The objective of a Stock Audit is to ensure the existence, accuracy, ownership rights and also verify the realizable value of the items inthe company’s inventory. Accurate accounting of inventory is also essential to a robust bookkeeping system and MIS reporting. Since the inventory has a lot of movement during business days, the process of routine physical verification needs proper planning,resource mobilization and expertise.

Our team of experts can assist you in inventory verification and provide more insights into your stock, along with a proper reconciliation of the existing stock records.Through our inventory verification and valuation services, we identify the excess/shortage of materials in stock and identify the old/damaged materials in inventory. It helps the management to reduce wastage and losses arising due to damage or obsolescence stock.

Which Companies are Required to do Inventory Audit?

The Companies (Auditor’s Report) Order, 2016 (CARO 2016) also requires auditors to comment on “Whether physical verification of inventory has been conducted at reasonable intervals by the management and whether any material discrepancies were noticed and if so, whether they have been properly dealt with in the books of account”. Companies into manufacturing of any type of inventory must get their inventory periodically verified. Also, Companies having multiple distributors and retail outlets, must ascertain checks at all levels to know discrepancies if any.


Most frequent questions and answers

As an inventory verification company having presence PAN India, we generally follow below procedure:

- Classification of Inventory as Finished Good, Raw Material and Consumables.

- Upload all pending purchase and sales bill in the system.

- Report of Known Stock Count Item Wise.

- Re-arranging of stock as per SKU , Category , to be dispatched and inventory in hand.

- Physical Counting of Inventory or Scanning of Barcodes

- Physical Count Report

- Reconciliation of Verified Stock count with Known Stock Count

- Certified Inventory or Stock Report by Financial Officer, SCM, CA, Manager

- Discussions for Better Inventory Management Process


Formal stock audit report results are called Auditor's Opinion, Report, or Statement. It consists of stock count as per SKU and Stock item names. A certified and Signed reconciliation report is also provided having Known Stock Count and Verified Stock Count. Also, our experts give recommendations on how to improve inventory management. 

To audit your inventory, you’ll need to choose any of the methods that makes the most sense for the purpose it serves and who is performing the audit. But Cut off Analysis and Physical Inventory Count are the most used methods. Here are a few of the most common inventory audit analyses and procedures used.

1. Cut off analysis

This is when you pause operations such as receiving and shipping at the time of the physical count to ensure nothing is being handled and goes unaccounted for.


2. Physical inventory count

This is to make sure that the system’s numbers match up with your physical stock, counting each unit. The use of product barcodes and devices like inventory barcode scanners can help keep track electronically.


3. ABC analysis

This is when you group items of different value and volume together, such as high-value items

(or “A” products), mid-tier “B” products, and low value “C” products. You may even choose to store these items accordingly this way (which can make it easier for an auditor who pays attention to mainly the high-value inventory items).


4. Finished goods cost analysis

This is ideal if you create your own products as it demonstrates when product is ready to be sold so an auditor can immediately value the inventory for the current accounting period. Auditors may test this inventory to ensure financial statements are accurate.


5. Reconciling items

If there are discrepancies found in your inventory audit, you may wish to do a reconciling items investigation to determine the root cause. You’ll want to track if there are certain error-prone SKUs and keep an eye on them in the future.


6. Match invoices to shipping log

Verify that invoices match the amount of items and cost of inventory shipped from your ecommerce warehouse. This may be done at random by an auditor to verify that the right amount was charged to the right customer at the right time.

Our Services Include

  • Inventory Verification Services
  • Physical Verification of Inventory
  • Stock Audit
  • Stock Verification of Stores
  • Distributor Stock Audit
  • Physical Stock Count
  • Better Warehouse Space Management