A stock audit (or inventory audit) is the process of physically verifying the quantities and condition of inventory held by a business. It helps ensure that the stock records match the actual inventory on hand, identifying discrepancies between the recorded and actual stock levels. Stock audits are essential for maintaining accurate inventory records, preventing fraud, and ensuring operational efficiency.

Key objectives of a stock audit include:

  1. Inventory Accuracy: Ensuring that the recorded inventory levels in the company’s books (e.g., ERP systems or stock ledgers) match the physical stock on hand.
  2. Stock Valuation: Verifying the value of the inventory to ensure that it is accurately reflected in the financial statements, ensuring proper reporting of cost of goods sold (COGS) and inventory valuation.
  3. Identifying Discrepancies: Detecting and investigating discrepancies such as missing, damaged, or obsolete stock, as well as identifying possible cases of theft, loss, or administrative errors.
  4. Improving Inventory Control: Reviewing and improving inventory management systems, processes, and internal controls to reduce wastage, spoilage, and stockouts.
  5. Compliance: Ensuring that the business complies with internal policies, accounting standards, and legal regulations concerning inventory management and reporting.
  6. Asset Protection: Safeguarding the company’s stock from mismanagement, theft, or damage by implementing effective stock handling and storage practices.

The stock audit process typically involves a physical count of inventory, a comparison of physical stock with accounting records, and reconciliation of any discrepancies. It may also involve evaluating the overall condition of the stock (e.g., expiry dates for perishable items, damage, or wear) and ensuring proper classification and valuation of the inventory.

Stock audits are often conducted annually but may be done more frequently, depending on the size and nature of the business, particularly in industries with high stock turnover, such as retail, manufacturing, or distribution.