Income Tax

Inventory Audit: Purpose of Inventory Audit

Inventory Audit

An Inventory Audit is a process of accounting the Inventory level of a company. It maintains the record of stock stored by the company while keeping track of the company’s current supply. Companies claim inventory as an asset and claim valuation for it every year. For claiming valuation on stock Inventory audit is very beneficial.

What is the Purpose of Inventory Audit?

The purpose of the audit is to get accurate information about the inventory and to avoid stock-outs. This process should be carried out at different levels of productions, so that correct information about the stock at a different level can be judged. Inventory Audit can be done as frequently as a business wants to keep an accurate track on its inventory. If the transaction is huge or the quantity is huge, it is advisable to do the audit on every month. Whereas in other cases, an audit can be conducted quarterly basis or couple of month after depending on the size of the business.

Various IT companies[1] have introduced their software for proper maintenance of data for audit. With a push-button, the Inventory audit process can be started. Warehouse workers doing physical inventory count got relief through such automation.  Because of automation the accuracy and speed of the entire operation have increased.

The Auditor of the company needs to maintain all records and documents for the Inventory Audit. He needs to upgrade and keep track of every transaction of the production and sales process. A proper system is followed with minimal wastage of raw material in the production process until it is converted into finished goods.

READ  Govt. extends deadline for online filing of Forms under Income Tax Act

Read, Also: Manage Your Inventory Wisely to Reduce the Working Capital.

Inventory Audit Questionnaire

Following are the questionnaire which helps to get accurate and complete information about the stock in the company. It also helps to take appropriate steps if there is any downfall in stock.

  • Does the company maintain complete and accurate records of the product?
  • Does the company monitor the production process?
  • Does the company follow up with the production department about out-of-stock materials?
  • Are stocks stored in assigned areas? And if so, who is the authorized person to keep watch on it?
  • Are stocks insured against the following risks?
    • Fire
    • Strike, riot and civil commotion
    • Flood
    • Hail damage where applicable
  • If insurance against such points in not taken, what steps have been taken by the senior management?
  • If insurance is taken by the company whether the Proper record is maintained for such policies?
  • Does the stock report is reviewed periodically?
  • Which officer will be responsible for the valuation of the stock insured?
  • Is the adequacy of the insurance cover reviewed periodically?
  • Does the company maintain records of perpetual stock? Including
    • Raw materials
    • Work-in-progress
    • Finished goods
    • Stores
  • Does the Auditor periodically reconcile the stock with accounting records?
  • Does the department maintain a record of transferring of product from one activity to other?
  • Does the company maintain complete and accurate documents of all transfer?
  • Does the company communicate the handling and storage procedure clearly to its employees?
  • Are there norms for stock levels to be held?
  • Does the company do periodic reporting of?
    • Slow-moving items
    • Damaged items
    • Obsolete items
    • Over-stocked items
  • Is there a well-laid out the written procedure for inventory count?
  • Are stocks physically verified once in a year?
  • Does the company monitor damage caused to the stock?
READ  Internal Audit Checklist for Laboratory

Read, Also: Statutory Audit Checklist for Manufacturing Companies.

Trending Posted