- Stock Auditis an independent check on the functions of the management, which has some value in the eyes of law and the taxation authority. Stock audit, in general usage is considered as an important auditingterm which refers to the physical verification of theinventory.
- In simple a Stock Audit is a term which is generally used in manufacturing industries where in raw material purchased is converted in to finished goods. It is important from the perspective of having vigil over the quantity and quality of raw materials remaining in stores as more than 70% of product cost involves material cost. So, to monitor the purchase, store and issue of materials a stock audit is done
- Identify the procurement process
- Analyse demand and supply situtation
- Ordering quantity and reordering quantity (EOQ,EBQ etc).
- Identiy stock levels – slow moving,fast moving and non moving items
- Inventory valuation methods and inventory policy
- Identiy the gaps and eliminate the areas which hampers movement of stock and storage.
As I mentioned earlier since, 70% of total cost will be on materials, you should have a sound stock policy so that it will help you in 5 ways –
1.Order Right quantity
2.Order at Right Price
3.Order through Right source
4.Order at Right Time
5.Order Right quanlity
By having regular stock audit, you can reduce unnecessary investment on stocks and make sure that you have a proper line balancing in the process.