Businesses, including ecommerce, may have to audit inventory whether it is for verifying units that are on hand or for compliance purposes. An inventory audit may done either in house or a third party. In this article, we will look deep into the procedure of inventory auditing valuable assets of a business – inventory!
What is an audit for inventory?
An inventory audit in UAE is a process that implemented in order to crosscheck. If the financial records of a business match the records for inventory or count of the physical goods. An inventory audit does not have to be implemented by an audit firms in Dubai team; however, it is an absolute must to have an experienced auditor in checking the finances of a business. And confirming whether or not counts for stocks are accurate.
There are a lot of ways in which auditors in Dubai perform an inventory audit in UAE. The method used will depend on the purpose for undertaking the procedure.
The most common analyses utilized by audit experts in Dubai and throughout the country:
- Cutoff analysis – it is when operations are paused including shipping and receiving from the time physical count is initiated in order to make sure that everything is handled also to make sure everything is accounted for.
- Physical count – for this, there is a need to ensure that the numbers in the system are matching with the stock of the business. This involves counting every single unit. Product barcodes as well as devices used in keeping track of inventory electronically.
- Analytical processes – these involve comparison of ratio of inventory turnover, gross margins, unit costs of inventory from the previous years, and a lot more.
- ABC analyses – these are when products of different volume and value are separated into groups. The high value items will be labeled as group A with mid tier products in group B and low value products as group C. Items can be stored like this also as this can make it very easy for an auditor that will pay attention to the high value items of inventory.
- Freight cost analyses – for these analyses, costs of getting products from an area to another will be determined. Freight shipping costs, date of receipt, and tracking of time in between shipments will be accounted for. The documentation will be accounting units which are also in transit, plus checking. If there are those that are damaged or lost in transit.
- Overhead analysis – this is knowing the costs that are considered as indirect from doing business. This can help in budgeting for the following years. Apart from labor and direct materials, an overhead analysis takes a close look at the hidden expenses like rent and utilities. More often than not, businesses in UAE record all overhead or operational costs as part of their costs for inventory.
- Finished products cost analysis – it would be ideal for a business that creates its own products as this will demonstrate when the products are ready for sale. An auditor will immediately value inventory in relation to a current accounting period. An auditor will test inventory in order to make sure that the business’ financial statements are all accurate.
- Item reconciliation – if there is any discrepancy that is found in an inventory audit, a business owner may want to do an investigation in order to find out the root case. You would want to track for certain error prone processes and keep a keen eye on them.
- Matching invoices from shipping logs – This is where invoices are verified if they match the number of products and cost for inventory that is shipped from a supplier or warehouse. It can be done by an audit team at random in order to verify. If the correct amount was charged at the correct time to the correct customer.
Calculating profit through Inventory audit in UAE
There are a lot of reasons why a business would want an inventory audit. One is calculating profits as accuracy in the accounting of inventory will inform the bottom-line. Accounting and tracking changes in value of inventory as it relates to cost of the goods. That are sold and manufacturing can impact a company’s accounting records drastically. An inventory audit in UAE will prevent inventory shrinkage. As well as identify the ones that are slow to move and very costly products.
Finding inefficiencies through Inventory audit in UAE
An audit will help you in finding inefficiencies including inventory that is not selling much at all and ones that cause frequent stock outs. An inaccuracy with inventory tracking technique will also be uncovered together with other operational errors.
All the information that will be provided by an auditor after conducting an inventory audit will prove to be very useful to a business. Especially in making huge decisions regarding its operations. If you want to talk to seasoned auditors in UAE, call us here in Farahat & Co today!