Inventory Audit

The Benefits of Conducting an Inventory Audit: Why It’s Important?

The inventory audit is important to assure that the asset allocation is in compliance with the business rules and that the purchases are made only based on historical sale records and vendor details. However, the audit requires the audit department to go through every single purchase and check the historical sales figures and other details of the same to determine that the asset allocation complies. It is also necessary for the audit department to review the asset allocation frequently to ensure that the planned asset allocation of the company complies with the existing asset allocation. A high-quality inventory audit helps strengthen the balance sheets, making it an asset for the company in the long run.

Why Do Companies Conduct Inventory Audits?

An audit is an easiest and easiest way to measure inventory in your organization. All you need to do is to use a spreadsheet and input the records of the inventory you have. All you need to do is to run the audit report for the audit of the inventory, and the report will calculate the accurate inventory count. As an owner, you have several options to check the accuracy of the numbers. Inventory audit is usually conducted by internal auditors or external auditors. They audit the inventory number in the physical space of the warehouses and distribution centers. Once the audit report is done, the company owner can ascertain the accuracy of the inventory numbers and also take corrective action for further improvement.

Thus, inventory audit, along with accounting services, plays an important role in the growth of a company. You must understand both things correctly.

What is Accounting?

Accounting refers to the management of the financial statements used to compile the financial statements required for any business to remain open and compliant with financial reporting regulations. The Institute of Chartered Accountants of India (ICAI) constitutes Accounting Standard Board (ASB) is the country-wide standard-setting body for accounting and financial reporting. It was established in April 1977 and is sponsored by ICAI. ASB writes, approves, and standardizes national financial accounting and reporting rules as well as the accounting and financial reporting codes used in India.

As businesses can only grow and thrive if they run in an environment of continued financial security, effective accounting measures play a vital role in helping businesses establish and maintain the right financial health for growth. According to research, accounting services help optimize and manage business activities, and the right accounting services empower businesses to generate as much revenue as possible. Professional accountants are highly experienced and skilled in the management of accounting and finance.

How to Conduct an Inventory Audit?

The first step to perform an inventory audit is to compile a list of all the material the company has inventory. The list should include the types of products or materials that are present in the company’s inventory and the quantity and value of all the items. Depending on the value of a product, this quantity should be recorded. This quantity is the final value at the end of a tax year. The next step involves conducting an inventory count of the stock for each inventory item. The count includes the inventory stock that has not been used or damaged and also the inventory stock that has not been sold.

The Benefits of Doing an Inventory Audit

To get to know the benefits of conducting an inventory audit, we shall look into the reasons behind the audit procedure. During an audit, the audit professionals find out and note down all the articles for each department. These products are then grouped into their respective categories and placed in the ledger. The quantity of an item is noted down in the ledger. During an inventory audit, an inventory number is assigned to each product for the convenience of the person conducting the inventory audit. Now below are some of the benefits of doing an inventory audit.

  • Calculation of the accurate profits- 

Inventory audit shows the presence of the stock being bought and sold along with the physical count of the stocks. The accurate calculation of the profits shows the fact that the sales of the company match with the purchases made for the inventory. The company reports the profit by which the inventory turns into a profit. The profit report is crucial for the company if it is going to start making a profit with its future production.

  • Capacity maintenance- 

This is an important indicator for the management of the company. In case there is a shortage of stocks, the operations of the company would be affected. The management would require inventory to perform the operations for a long time.

  • Helps in identifying slow-moving and obsolete inventory items- 

These auditors can also cross-check the relationship between the monetary value of the inventory and its weight and the quantity of the stock. Suppose the relationship or the inventory is not correct. In that case, the auditors can alert management about the stock’s exact physical numbers and the number of items in the stock, and the distribution of the stock. This will help them to avoid bad business practices in the future. Inventory audits can help in identifying loss, theft, and physical damage.

  • Helps in the prevention of fraud and errors- 

An audit can help in detecting problems and mistakes with an organization’s inventory, thus preventing them from occurring in the future. The misplacement of a product in a warehouse can be a huge problem, for instance, because the particular item can potentially get stolen, and that could cause loss of money and lots of other costs. Furthermore, any errors in accounting can cause a financial catastrophe to a business as it not only means millions of dollars of lost profits but also loss of goodwill with customers. Therefore, a comprehensive inventory audit gives a good insight into the financial health of the company.


While performing an inventory audit, the auditor follows certain methods and tactics to ensure that the organization’s inventory policies are effective and comply with the government’s rules and regulations. In addition, the audit ensures the accuracy of all inventory records and costs associated with the supply chain of the company.

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