Things to check when you are on a Stock Audit – Check List

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What is Stock Audit

Banks when issuing cash credit limits usually take primary security of stock & book debts of the client. For regular verification of the same, they appoint CA’s to carry out the stock audit of the same. So here is a simple way of how you can tackle a stock audit.

Things to check when you are on a Stock Audit.

• First of all, you should read the format of the report which you have to submit. Make sure you understand every aspect of the format & then you should proceed towards the audit.
• Read the Sanction Letter of the Bank & find out the limit of the borrower whose stock is being audited by you.
• Also, if required you can obtain a copy of the same for your records.
• Make sure you safely preserve all your working papers even after the completion of the report.
• You should have a basic knowledge of the type of activity undertaken by the client. If you are unaware about the same, you can get the details from the branch office of the bank.
• Also, you should collect information about all the sister concerns of the client & the type of business in which they are engaged.
• You should be aware of the nature of goods traded & the unit in which it is measured.
• It may sometimes not be possible to count the stock completely. At that time, you should be careful enough to take proper approximations.
• You should also read about the collateral security offered by the client.
• If they have any Bank Guarantees or Letter of Credits, make sure you have proper information about the same.
• Valuation Report by the Authorised Valuer should also be reviewed by you.
• Most of the banks have the policy to obtain stock statements periodically. Make sure the same have been supplied by the client. You can carry a copy of the same to the client place so that you can estimate their average stock.
• Also, You should have general information about the safety stock, Economic Order Quantity, etc.
• You should also note details about dead stock, slow moving stock, etc.
• You should also check whether there is a proper insurance cover over the stock & it is renewed at proper intervals.
• Also, you need to have a look on the book debts of the client.
• For this, you can interview the employees of the client & ascertain the nature of debts, what is their normal credit period & average bad debts percentage etc. & make sure they are within the Bank’s generally accepted policies.
• You also need to overview the creditors and the period of holding they provide the client. This will also help you to analyze the creditability of the client, its liquidity, etc.
• Once you are done with the counting part, you should move towards the calculation part.
• You need to make the calculations whether the proper margin is maintained, as per the bank’s norms.
• After completing all this, you may move towards the reporting part.
• There may be various statutory compliances that the client needs to follow, make sure the same is being regularly complied by the client.
• The above is also a reporting requirement for many stock audit reports.
• Also, make sure your report is complete in all aspects & submitted at the right time.

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