Stock Audit


The process of auditing is done through a set of rules and regulations as per the companies' act 2013. It examines the financial statement of a company to determine the prepared statements to be true and fair in terms of company affairs.

Similarly, a stock audit is a process that refers to physical verification of the inventory which includes evaluation of inventory items based on the reference of the assignment.

The stock audit process is necessary to reduce the avoidable investment on stocks or inventory to ensure proper balance in the process. As high levels of stock result in overstocking which may result in the poor value of cash flows and financial losses.

The auditor's task is to check the statements during the process of examination. If he/she comes across with any fraud or discrepancy by the management of the company, then the auditor should mention those in his report. The auditor cannot perform an audit on assumption that management of the company might have committed fraud.

The main reasons for executing the audit are to correct the discrepancies that are present in the stock record when verified with the physical stock bypassing necessary adjustment entries. Following are the reasons why it is looking forward to performing a stock audit:

  • To update the starting stock details.
  • To identify the discrepancy between stock records also known as computed stock and physical stock.
  • To update actual physical stock as a stock record.
  • To ensure proper handling of stocks.



  • The objective of conducting a stock audit is to ensure the security of funds that are lent by the bank, being safe and valued correctly.
  • Inventory Audit also known as stock audit where the evaluation is done for raw materials that gets converted to finished goods. It is important to keep the information updated about the quantity and the quality of raw materials in stock.

Stock Audit Checklist

Inventory is one of the important field for any business where chances for fraud are more prone. So is, its department where thefts and damages occur more often.

That's why, it is good to have strong control over all the processes, checklists, and regular stock audit for efficient functioning. Following is the checklist for the audit of Inventory.

  • Stock audit software is used to keep records of inventory, mostly it is integrated with accounts.
  • The stock evaluation process, components of cost of inventory, method of valuation.
  • Frequency of verifying of stock record with physical stock.
  • Stock related MIS format and contents.
  • Physical security of Stock, CCTV, Firefighting equipment.
  • Insurance of stock.
  • Categorization of inventory in the high, medium, and low-value stock.
  • Inventory lying with third parties.
  • Old stock, expired stock, stock near expiry dates, perishable inventory.
  • Inventory levels, inventory age analysis.
  • Inventories having duplicate codes in software.

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A: Stock audits can be conducted by internal auditors, external auditors, or professional firms appointed by the company. The audit can be conducted on a periodic or ad-hoc basis as per the requirements of the company.

A: There are two types of stock audits: comprehensive stock audit and partial stock audit. A comprehensive stock audit involves the complete physical verification of all items in the inventory, while a partial stock audit involves the verification of only a selected portion of the inventory.

A: The benefits of a stock audit include improved accuracy of financial statements, early detection of fraud or theft, better inventory management, and cost optimization. A stock audit also helps in identifying inefficiencies in the inventory control system and providing recommendations for improvement.

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