Stock Audit
Physical verification of inventory against the books, commonly required by lenders.
Usually 1–5 days on site depending on the number of locations and the range of items
A stock audit verifies that the inventory a business reports is actually there, in the condition and quantity recorded. It is most often commissioned by a lender who has advanced working capital against stock, and periodically by management as a control in its own right.
The exercise covers quantity, condition and valuation — items that are physically present but obsolete or damaged are a different problem from items that are missing, and both matter.
What verification involves
Counting is only part of it. The audit also considers how stock is valued, whether slow-moving and obsolete items have been identified, whether goods held on behalf of others have been excluded, and whether goods in transit have been accounted for correctly.
Where differences are found, the useful output is not simply the number but the explanation — a recording error, an uninvoiced dispatch, or a genuine shortage each call for a different response.
Preparing for the visit
A stock audit goes considerably faster where the stock is arranged and labelled, the stock statement as at the verification date is ready, and someone who knows the godown is available throughout.
We share a short preparation note before the visit so the day is spent verifying rather than locating. Where there are several locations, we agree the sequence in advance so that stock cannot be counted twice by being moved between them during the exercise.
Cut-off: the difference that is not a shortage
A large proportion of the differences found in a stock audit are cut-off issues rather than losses. Goods dispatched on the evening before the count but invoiced the following morning are physically gone and still in the books. Goods received but not yet recorded are present and unaccounted for.
Neither is a problem in itself, but both look like one until they are identified. We check the transactions either side of the verification date specifically for this, so that the difference reported to you is the genuine one.
What the report says, and to whom
Where the audit is commissioned by a lender, the report usually has to follow their format and is addressed to them. Where management commissions it, the report can be structured around what is most useful internally — commonly the difference analysis and the position on slow-moving items.
We confirm at the outset who the report is addressed to and what form it must take, since that affects what we need to record during the count itself.
Who needs this
- Businesses with working capital facilities secured against stock
- Businesses whose lender has asked for periodic stock verification
- Businesses with multiple godowns or branches
- Management wanting an independent check on inventory records
Eligibility and conditions
- Inventory records maintained in some form
- A stock statement as at the proposed verification date
- Access to the godowns or locations to be verified
What this covers
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Physical verification
Counted against the books, location by location.
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Valuation review
The basis of valuation checked for consistency.
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Obsolete and slow-moving items
Identified separately from shortages.
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Difference analysis
Differences traced to a cause where possible.
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Report for the lender
Findings reported in the form the lender requires.
How the process works
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Agree the date and scope
Locations, cut-off date and the lender's requirements.
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Preparation note
What to arrange before the visit.
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Physical count
Verification on site, with your representative present.
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Reconcile
Counted quantities matched to the stock statement.
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Report
Findings, differences and valuation observations issued.
Documents required
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Stock statement
As at the verification date, item-wise.
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Purchase and sales records
For the period around the cut-off.
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Goods in transit details
Dispatched or received but not yet recorded.
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Third-party stock details
Goods held on behalf of others, or held by others for you.
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Valuation basis
The method applied and the costing records.
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Lender's format
The report format the bank requires, where applicable.
The list above is indicative. Additional documents may be required depending on your case and the current departmental requirements.
Stock audit required by your bank?
Tell us the locations and the lender's requirements and we will confirm the timeline and what to prepare.