The Summary
According to my choice of the topic I have researched an article based on Inventory auditing, I have summed up the accruing benefits and also how I would apply the inventory knowledge in my future career. An inventory audit is also known as a stock audit. It is the process of accounting that takes into consideration a firm’s total stock of its physical goods. ( Knechel, Salterio 2016). Some businesses that perform inventory auditing includes manufacturing firms whereby, the raw materials are needing to undergo the transition to finished goods, and it is quintessential of maintenance of healthy entity and also guarantee its success. Inventory auditing is in most instances considered mandatory to keep track of the quantity and the quality of raw materials that have remained in the stock, as anything above 70% of the cost of products will involve the material cost. Also, inventory auditing is suitable for organizations owning multiple branches as they tend to possess an extensive stock of goods. Verification is, in most instances, carried out at the end of every year.
Conducting an inventory audit comes in hand with various benefits which include;
Inspection of the inventory is a necessity that a business entity will need to match the exact quantity of its stock items, against the records of accounting, adjust the differences and give room for shrinkage so that the ledger will reflect accurate values.
Conducting an inventory audit will reveal the kind of physical stock that is in deficit. This will create a room to allow the manager to properly and effectively restock the business to ensure profit maximization. More to that is that it assists in decreasing additional investment to the stock and provides a proper line of balance is in progress.
Inventory audit assists in comparing the actual physical stock count, and it matches it to the records of the enterprise. When the head count has been conducted accurately, the auditing of inventory will enhance in the disclosure of the real picture of what the business holds and compare it to the stocks that have been recorded. This will give an understanding of the state of health of the entity in terms of finances. ( Karim, Nawawi, Salin).
The audit is imperative in accounting for any losses in the inventory that is as a result of wastage, damage, unmoving stock, pilferage, and obsolescence of goods.
Carrying out an inventory audit will facilitate the determination of the efficiency of the institution’s warehouse procedure, to whether it is receiving dock or during the original packaging of stock. This will enable highlighting of any potential threats of inefficiency in the processes such as reorganization of the store and retrieval methods that are slow.
Auditing will enhance the reveal of any failure that owes the firm to the insecurity that will resort to lose, misappropriation of stock and also theft.
It will minimize the high levels of stock that may lead to unnecessary overstocking that will finally lead to poor cash flow and loss of finances. In a similar case, it will assist in detecting of any obsolete inventory stocks or even wrong orders that could have been delivered by suppliers, and it may contribute to financial losses that may end up destroying the reputation of the firm.
Several procedures are involved in inventory auditing;
Periodical analysis usually carried out at or close to the end of the trading year.
Perpetual Analysis of this procedure involves counting on the basis that is continuous over that whole year.
In conclusion, some applications may help the business to audit its inventory. Such as cutoff analysis that will examine your procedures to stop any further receipts in the warehouse. Observing the initial inventory count, reconciling the inventory count to the ledgers, testing errors that are prone to the stock items. Applying the above significances will assist in making my work and stock efficiency.
References
Karim. N, Nawawi. A Salin. A Inventory control weaknesses.
Knechel, W., & Salterio, S., (2016). In Auditing: Assurance and risk.