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Stock/ Fixed Asset Audit
Overview
Stock and Fixed Asset audits are essential components of a company’s internal control system. These audits not only validate the accuracy and existence of inventories and fixed assets but also ensure that they are accounted for, safeguarded, and optimally utilized.
While stock audits focus on verifying inventory records and physical stock positions, fixed asset audits ensure compliance with accounting standards, depreciation rules, and asset lifecycle management. These audits are especially crucial for lenders, investors, regulators, and management, enabling accurate financial reporting and operational efficiency.
Stock Audit
What is Stock Audit?
Stock audit is a systematic verification of inventory maintained by a business. It involves physical counting, reconciliation with records, and an analysis of inventory management practices to detect discrepancies, pilferage, obsolescence, or overstocking.
When is it Required?
Mandated by banks for loan compliance (especially CC/OD limits).
Required by management for internal control.
For third-party verification of stock.
For statutory audit support or due diligence exercises.
Steps in Stock Audit
Understanding the Business & Inventory System
Review inventory types, storage methods, software used (e.g., ERP), and flow of goods.Planning the Audit
Define scope—raw materials, WIP, finished goods, third-party stocks.Physical Verification
Conduct on-site visits to count inventory and assess storage practices.Valuation & Reconciliation
Match physical count with books of accounts, pricing, and valuation methods (FIFO/LIFO/Weighted Avg).Reporting
Document discrepancies, slow-moving/obsolete stock, and internal control gaps.
Fixed Asset Audit
What is Fixed Asset Audit?
Fixed Asset Audit is the evaluation of physical, financial, and operational aspects of a company’s tangible assets—such as land, buildings, machinery, vehicles, and equipment. It ensures that the assets exist, are in working condition, are used effectively, and are properly accounted for in financial statements.
Why It’s Important
To prevent misuse or theft.
For accurate depreciation and accounting.
To comply with Ind AS 16 / AS 10.
For insurance and loan documentation.
To ensure timely maintenance and asset lifecycle management.
Steps in Fixed Asset Audit
Asset Register Review
Analyze the fixed asset register with details like purchase date, cost, location, depreciation, and disposal records.Physical Verification
Match assets physically with the register, verify asset tags/barcodes if any.Assessment of Utilization & Condition
Check usage levels, idle assets, repair history, and potential impairment.Depreciation & Capitalization Review
Ensure compliance with accounting standards and company policies.Reporting
Highlight missing or idle assets, improper depreciation, or under/over-capitalization.
Frequently Asked Questions
An audit ensures financial transparency, regulatory compliance, and accurate financial reporting. It also helps in risk management and enhances investor confidence.
An internal audit is conducted voluntarily to improve internal controls and operational efficiency, while a statutory audit is legally mandated to ensure compliance with financial regulations.
Businesses and professionals whose turnover or receipts exceed specified thresholds under the Income Tax Act must undergo a tax audit.
Financial statements, bank statements, invoices, ledgers, tax filings, and other relevant financial documents are necessary for a statutory audit.
A stock audit should be conducted at least once a year to reconcile physical stock with accounting records and prevent discrepancies.
GST due diligence is a comprehensive review of a company’s GST compliance, ensuring accuracy in tax filings and adherence to GST laws to avoid penalties.
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