What is Stock Audit?

Simply put, stock audit involves:

• Physical counting of inventory

• Verifying its valuation (as per accounting standards)

• Reconciling the difference between recorded stock and physical stock

A proper stock audit helps identify mismatches, pilferage, slow-moving or obsolete inventory, and gaps in inventory management practices.

What is Considered Inventory?

Inventory can include:

• Raw Materials & Components

• Work-in-Progress

• Finished Goods

• Spare Parts, Loose Tools, Maintenance Supplies

• Waste, Scrap, or By-products

All of these need to be accounted for during the audit.

Purpose of Stock Audit

Businesses and institutions perform stock audits to:

• Identify dead stock, obsolete items, or scrap

• Detect mismatches between book stock vs. actual stock

• Update financial records with actual quantities and values

• Ensure adequate preservation and management of inventory

• Prepare accurate reports for financial, operational, or statutory needs

Benefits of Hiring a Stock Audit Consultant

• Early detection of slow or non-moving stock

• Prevention of fraud and theft

• Real-time visibility into inventory valuation

• Improved stock planning and cost reduction

• Independent and third-party audit opinion

• Enhanced financial transparency, especially for banks and lenders

Key Elements of Stock Audit (as per ICAI Guidelines)

1. Evaluation of Internal Controls

Auditor assesses whether stock movement and inventory recording follow standard procedures. This includes checking segregation of duties, documentation systems, and data cross-verification.

2. Verification

The auditor must obtain evidence about:

• Existence – Inventory is actually available at year-end

• Ownership – Inventory is owned by the entity

• Valuation – Valuation is accurate as per ICAI Accounting Standard AS 2

Stock Auditor Appointment & Eligibility

Stock audits are often mandated by banks as part of their working capital loan compliance. Banks may appoint independent auditors or ask companies to appoint qualified firms.

Eligibility includes:

• Minimum 3 years of post-qualification CA practice

• At least 2 years of experience in stock audits across industries

• In case of firms, the collective experience of partners is considered

Scope of Work for a Stock Auditor

A stock auditor typically reviews the following:

• Physical stock verification

• Debtor and creditor outstanding

• Sales and purchase summary for the period

• Quarterly stock statements submitted to banks

• Insurance coverage and drawing power computation

• Stock movement & reconciliation

• High-value item analysis (ABC method)

• Inventory-in-transit and freight analysis

• Cost of finished goods

Common Stock Audit Procedures

1. Cut-off Analysis
   Ensures that recent transactions before/after the physical count are properly recorded.

2. Inventory Counting
   Using barcode scanners or manual verification to ensure accuracy.

3. Inventory Layer Verification
   Checking FIFO or LIFO method is applied correctly.

4. Inventory-in-Transit Audit
   Ensures that goods in transit are accurately tracked and recorded.

5. ABC Analysis
   Categorizing inventory as high (A), medium (B), or low (C) value for efficiency.

6. Finished Goods Cost Analysis
   Determining the accurate cost of ready-to-sell products.

Final Steps by Auditor

• Examine stock records, invoices, GRNs, and issue notes

• Attend physical stock-taking sessions

• Confirm stock details held by third parties

• Verify valuation as per AS 2 and industry norms

• Prepare analytical review and final stock audit report

• Obtain a written confirmation from management on stock details and valuation methods

• Issue an audit opinion that is fair, factual, and backed by sufficient audit evidence

Need Expert Stock Audit Services in Maharashtra?

Whether you are a manufacturing unit in Pune, a retailer in Nashik, or an exporter in Aurangabad—SR Mahajan & Co. offers professional stock audit services tailored to your industry.

From bank-mandated audits to internal inventory reviews, we bring transparency, control, and accuracy to your inventory management process.

Contact us today to schedule your audit or request a consultation!