Stockauditbasics&checklistofdocumentsrequired

WhatisaStockAudit?
Itisthephysicalverificationoftheinventory.Howeverattimesitmayalsoincludevaluationoftheinventory,
thiswoulddependuponthetermsofreferenceortheengagementletteroftheassignment.
Importantthingtorememberinastockauditisthepurposeforwhichtheauditisbeingconducted.Different
auditsmayhavedifferentapproachtothem,whichwoulddependontheintentionforinstance,somewhere
itmaybetoensurethereisnopilferage(generallyforsmalleritems)ortoensurethattheyareproperly
stored,forlargerordamageablegoods
WhyisStockAuditConducted?
StockAuditisconductedtoensure:
i.ProperPreservation/StorageofStock.
ii.WhetherobsoleteandNonMovingstockhasbeenseparatelyidentified?
iii.Whetherstockisadequatelyinsuredagainstallperils?
iv.WhetherthePhysicalStockValueconfirmswiththeValueshowninBankStockStatement?
v.Whetherthestockisownedbytheborrower&financeismadeavailableagainstthepaidvalueofstocks
only.
vi.WhethertheAgewise&PartywiseBookdebtsanalysissubmittedtothebankerstallieswiththebooks.
HerearesomebasicsuggestionstogetreadyfortheStockAudit.Tailorthemtoyourclient.Forsome
clients,thesestepsmaybetoomuch.Forotherclients,youmayhavetoaddsteps.Ifthecompanyisa
repeatclient,youllhavetheprioryearsworkpaperstohelpyou.Otherwise,yourauditteamleadercan
providefurtherassistance.
1.Identifyinventorylocations:Findoutfromyourclientwhereitstoresinventory.Ismorethanone
locationinvolved?
2.ReviewBankAgreementLetter:Getacopyoftheclientsagreementwiththebank(whichlaysout
thepoliciesandproceduresforcalculatingandverifyingtheinventory),reviewit,anddiscusswithyourclient
anymodificationsyouwanttomaketotheprocedure.
3.Tourthebusiness:Checkoutthewarehouseorotherstorageareasbeforethephysicalinventorycount
soyouknowthelayoutoftheland.
DocumentsRequired:(A)FromtheBankBranchOfficials:
a.SanctionLetter
b.StockStatementcertifiedbyaCA.forthelastmonth.
c.BankStatementforthelast3months.
d.ParticularsofCollateralSecuritytobechecked.

e.IncaseofCompany,CopyofFormNo.8&32forcreation/modificationofCharge.
f.BalanceOutstandinginAllAccountswiththebank.
(B)FromtheBorrower:
a.StockStatementasondateofVerification
b.TrialbalanceorProvisionalBalanceSheetasondateofVerification.
c.Copyoflatestauditedbalancesheet.
d.InsurancePolicy(Incl.BankHypothecationClauseforprimaryaswellassecondaryCollateralSecurity.
e.FiguresofPurchaseandSalesforlast6monthsaswellasforcurrentmonthtilldateofVerification.
f.InvoicesofPurchases&Sales,StockRegister&othersupportingDocumentsforverifyinginternal
controls.
g.MethodofvaluationfollowedforInventorywithdetailedworking.
h.CopyoflatestExcise/VAT/CSTReturnsfiled.
i.BreakupofSalesintoexportanddomestic.
j.Detailsofnonmovingandobsoletestockandalsostockheldformorethan6months.
k.ABCanalysisofstocksbasedonthevalueofannualconsumptionofmajoritems.(OnlyifAvailable)
l.Productsmanufacturedwithdetailsoflicensedcapacity,installedcapacityandactualutilizedcapacity.
m.Monthwisedetailsofpurchasesandsales,stock,debtorsandcreditorsforlast6months
n.CopyofConstitutionoftheEntity.
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