what is stock audit? and procedure to do it?

This query is : Resolved 

17 December 2010

what is stock audit? and procedure to do it?
its relevance?

Manmohan ACA, CS (Expert)
18 December 2010

confirmation of , accuracy , value, quantity existence and ownership of stock.

A small checklist(general in nature) is given as hereunder. Hoping that the same may be useful for the members.
1. Whether the concern has adequate internal controls regarding purchase, sales and storage of materials?
2. Whether the physical stock has been identified with the help of unique no(Stock Number)
3. Whether value-more items has been given due consideration during the audit?
4. Whether the sample selected is sufficient and appropriate as under the circumstances
5. The procedures for movement of stock during the process of verfication has been controlled by a competent authority
6. The deviations reported in audit has been clarified/acknowleged by the management.

CMA Raveendranath (Expert)
18 December 2010


In simple a Stock Audit is a term which is generally used in manufacturing industries where in raw material purchased is converted in to finished goods. It is important from the perspective of having vigil over the quantity and quality of raw materials remaining in stores as more than 70% of product cost involves material cost. So, to monitor the purchase, store and issue of materials a stock audit is done.

1. Identify the procurement process
2. Analyse demand and supply situtation
3. Ordering quantity and reordering quantity (EOQ,EBQ etc).
4. Identiy stock levels - slow moving,fast moving and non moving items
5. Inventory valuation methods and inventory policy
6. Identiy the gaps and eliminate the areas which hampers movement of stock and storage.

As I mentioned earlier since, 70% of total cost will be on materials, you should have a sound stock policy so that it will help you in 5 ways -

1.Order Right quantity
2.Order at Right Price
3.Order through Right source
4.Order at Right Time
5.Order Right quanlity
By having regular stock audit, you can reduce unnecessary investment on stocks and make sure that you have a proper line balancing in the process.

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