Every corporate organization is required to conduct a stock audit at least once every financial year by law. In terms of the stock audit process, it entails counting physical stock on defined premises and comparing it to computed stock stored by the company.
The reason for doing this is to reconcile disparities between book and physical stock by submitting relevant adjustment entries.
Internal audit jobs can be thought of as a warm-up exercise before the organization is subjected to a third-party or external audit. This can help to ensure that the relevant documentation is in place and that any internal mistakes are addressed.
External vs. Internal Auditing
When opposed to an external audit, internal auditing is a more flexible and organization-friendly method. An internal audit aims to advise personnel about ways to enhance efficiency and accomplish their professional goals, whereas an external audit reflects the financial status and competitive position of the company. Internal audit's main goal is to uncover security flaws, assess and eliminate the risks involved as quickly as possible.
Stock Audit Procedure
There are several procedures that accounts for performing stock audit, including:
Cut-off Scrutiny - An audit is a process in which an auditor (or auditors) examines a company's practices. Before doing the physical count and following transactions, this comprises testing the last several receiving and shipping transactions. This ensures that they are all present and accounted for.
Physical Inventory Counting – It is the process of physically counting and accounting for all inventory assets. To physically count each item, an auditor frequently uses technology such as a bar code scanner.
Inventory Layers – a method used to ensure that the inventory recorded is correct if the organization uses FIFO (first-in, first-out) or LIFO (last-in, first-out) inventory.
High-value Item Inventory Analysis – Another title for ABC Analysis is high-value item inventory analysis, which refers to the grouping of A items, mid-tier B products, and low-value C products. It saves time and aids in the better management of a stockroom.
Inventory-in-transit Analysis - When materials are traveling between two or more sites, this type of analysis is used to trace the time between the date of shipping and the date of receipt. This audit ensures that none of the articles are lost or damaged while in transit.
Freight Cost Analysis – It is a method of calculating shipping costs and the costs of transporting goods from one location to another.
Finished-goods Cost Analysis – Finished goods are inventory that has been completed and is ready to sell. The worth of the inventory for the current accounting period is then examined by an auditor.
Reconciling items investigation - When inconsistencies between inventory counts and actual numbers in warehouses are discovered, a method called reconciling items investigation is used. The auditor checks for any mismatched records and then makes the necessary revision to the record.
To summarize, it is critical to know where you stand in terms of inventory/stock so that your brand remains visible to your target audience.
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