Effective Inventory Audit Procedures In Trading Business
To cut additional costs brought on by a lack or surplus of raw material inventories, an inventory audit is required. A company audit or inventory audit could be performed, and failure to do so could cost the organization money.
As proof that the company's management is operating effectively and there is no fraud, the auditor will produce a report following the completion of the inventory audit.
Physically inspecting the inventory that is kept in the warehouse is known as an inventory audit. The outcomes of the verification process will then be compared with the system-managed inventory.
An inventory audit is intended to address any discrepancies between recorded stock and physical stock. This guarantees proper inventory management.
What is an Inventory Audit?
Physically inspecting the inventory that is kept in the warehouse is known as an inventory audit. The outcomes of the verification process will then be compared with the system-managed inventory.
Because they have an impact on production costs, raw material inventory, and the maintenance of a successful firm, inventory audits are a crucial component of company audits. An error in the audit procedure report's data for the inventory report could result in extra expenses and have an impact on the trading company's income statement.
Inventory Audit Procedure
According to the inventory audit procedure, there are several steps of the inventory report audit procedure that can be followed, including:
1. Physical Inventory Count
The most typical inventory audit method is this one. The quantity of inventory in the system will be compared to the inventory of goods in the warehouse. Businesses that determine order amounts using the on-time inventory approach might employ this inventory audit procedure.
2. Inventory Cycle Count
Similar to physical counting, cycle counting involves manual product counts that are compared to the system on a particular type of product. Thus, inventory report audits are only performed on the most valuable products.
3. ABC Inventory Analysis
This inventory report audit procedure groups different items by value. So, only audit and save on certain desired groups.
4. Cutoff Analysis
This inventory report audit procedure stops all operations at the time of the physical stock count. So that there are no uncounted variable errors.
5. Analytical Procedures
An inventory audit procedure that compares the inventory turnover ratio, gross margin, or unit cost with the previous year's data. Aim to catch sudden increases.
6. Overhead Analysis
An overhead analysis is an inventory report audit procedure that examines all non-material costs. Such as rent, utilities, salaries, and other “hidden” costs associated with inventory.
7. Finished Goods Cost Analysis
The ideal method for manufacturers and manufacturing companies. All products are accounted for in terms of value and amount so that the financial statements are accurate
8. Freight Cost Analysis
Shipping cost analysis as an inventory report audit procedure to evaluate shipping costs and lead time. So, it can be calculated as loss or damage to goods during the transit time process.
9. Shipping Invoice Matching
As part of the inventory report audit process in the distribution channel, the auditor compares shipping invoices. The process verifies that there are no errors and that the cost of the supplies sent corresponds to the number of products shipped.
10. Product Reconciliation
If a problem occurs during the inventory count, you need to perform an inventory audit with a product reconciliation. That is an activity to track the SKU number of goods that may occur in the future.
11. Inventory Audit Purpose
In practice, the purpose of auditing inventory reports is to prevent fraud or damage to inventory in the warehouse. That is why the objective of an inventory audit must be supported so that the process runs smoothly.
The following are some of the objectives of an inventory audit:
- Keep inventory under control to prevent having too much or not enough raw material stock. Additionally, working with vendors makes the inventory management process simpler.
- Checking for waste of raw materials during production can be the goal of an inventory report audit in a trading business distribution plan.
- An inventory audit's goal is to find any production hiccups and losses from theft, broken goods, etc.
- Avoid overstocking, which can have an impact on the company's income statement and cash outflows.
- An additional goal of reviewing inventory data is to protect the business from any form of financial loss.
- Assists businesses with branches in several places with cross-verifying their inventory.
Thus an article about Effective Inventory Audit Procedures In Trading Business. Hopefully, this information will be useful for you.
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