- Post:CA Sundram Gupta
- June 26, 2020
Importance of Stock Audit in an Organisation
Stock Audit is a process of physical verification of the physical stock maintained in the storehouse of the company and matches the result with the stock registers maintained by the company. It is also called as Inventory Audit. It is needed in production and retail companies where raw material needed to be converted into finished goods and it is the conventional process of maintaining a healthy business and for it to succeed. The inventory level of a company has a direct impact on the company’s profit. Any kind of error in the report can lead to additional expenses for the organization.
Stock audit is necessary to reduce unnecessary investments on stocks and to ensure that you have a proper line balancing in the process.
It helps to keep a track of the inventory to avoid any shortage and overstocking of the material. Also, the process of inventory management becomes easier in case the company is dealing with various vendors.
In the case of a manufacturing company, through the stock audit, you can keep a check that there is minimum wastage of raw materials in the production process and maximum output in terms of finished goods.
Stock audit will disclose any failure due to lack of security which results in loss, theft, or misappropriation. It is also crucial to any sort of inventory losses resulting from wastages, pilferage, dormant and obsolete stock.
A high level of stock generally results in overstocking thereby affecting the cash outflows and profit of the company. A Stock Audit at timely intervals will act as a remedy to this problem.
Stock audit enables the true picture of the financial position of the company as the stock that requires replacement or repairment can be worked on efficiently thereby saving the company from any kind of financial loss.
It also helps in finding out any discrepancies in the packaging and warehouse procedures.
Stock Audit helps in cross verifications of the stock of the company having multiple business locations.
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