Establishing an inventory audit procedure for an office or a warehouse is an essential prerequisite. An inventory audit involves periodically verifying the items on an inventory list. This prevents stockouts and ensures that the products needed to meet customer demand are in place. Audit firms in Dubai use multiple approaches to provide inventory auditing services.
An inventory audit is a process where auditors systematically inspect stocks and compare them to the records of what is on hand. This is done to make sure that the two match up and that there are no discrepancies. It is important to know what an inventory audit entails and how to prepare for one.
This procedure is an examination for halting processes such as receiving and shipping at the time of the physical count to ensure nothing is being handled and goes unaccounted for. So that unnecessary inventory item is excluded.
In this, make sure that the auditors are relaxed with the procedures you use to count the inventory. Auditors will discuss the procedures to count and observe the count as they are being done, test counts of the inventory themselves, and also trace the counts for the amounts recorded by the counters of the company, and verify that all inventory count tags were accounted for.
An inventory audit helps to reconcile items investigated to determine the root cause. They trace certain error-prone entries in the company’s general ledger to verify that the counted balance was carried forward into the company’s accounting records.
External auditors will possibly spend extra time on high-value items and will likely spend extra time counting them in inventory, ensuring that they are valued correctly and tracing them into the report for valuation that carries forward into the inventory balance in the general ledger.
If there is any error trend in previous years of specific inventory items, they will be more likely to test the items again.
A risk of inventory in transit from one storage location to another at the time of the physical count can be calculated. Auditors test it by reviewing your transfer documentation.
Accounting records are kept by auditors on the costs in your accounting records, and they will compare the amounts in recent supplier invoices to the cost listed in your inventory valuation.
An auditor has to review freight costs and include freight costs in inventory or charge them to expense in the period incurred, but you need to be consistent in your treatment. So, the auditors will trace the accounts for any units that are in transit, and also in case anything is lost or damaged in transit.
The lower cost or market rule is to be followed by the auditor and will do so by comparing a selection of market prices to their record costs.
The valuation is comprised of goods when the product is ready to be sold, so an auditor can immediately value the inventory for the current accounting period. This inventory is tested by auditors to ensure financial statements are accurate
An auditor applies the overhead cost analysis to the inventory valuation, The auditors will also verify that you are consistently using the same general ledger accounts as the source for your overhead costs, whether overhead includes any abnormal costs, and test the validity and consistency of the method used to apply overhead costs to inventory.
The allowances mentioned in the inventory will determine whether the amounts you have recorded as allowances for obsolete inventory or scrap are adequate, based on your procedures. If you do not have such allowances, they may require you to create them.
Under this procedure, the auditors will review the records to ensure that the inventory in your warehouse is owned by the company.
If you are using an inventory valuation system, the auditors will test the inventory layers that you have recorded to verify that they are valid.
Also read: Auditing and Assurance Standards
Every corporation is different and has different needs. Nevertheless, an inventory audit or stock audit is an essential requirement for corporations. For instance, if a corporation is experiencing a high rate of product loss if a corporation had a recent change in ownership, or if there is a change in your business processes. In these cases, a corporation should consider an inventory audit. An inventory audit assists in identifying any discrepancies in your inventory.
However, it is highly recommended to conduct an inventory audit at least once a year. However, other companies conduct inventory audits every quarter or month. For high-value items or if your inventory is constantly changing, corporations might be required to conduct audits more often.
Corporations can prepare for Inventory audits by ensuring that all records are up-to-date and accurate, making sure there is a functioning system in place for tracking inventory, and ensuring that all employees are familiar with it. There should also be a process for receiving and inspecting inventory, and for dealing with discrepancies. If any errors are found, it is essential to make sure they are rectified immediately.
It is essential to follow the steps below:
Compare your results with your business plan. This is the first step in seeing how well your business is doing. It is imperative to take stock of everything that has changed since you drafted your business plan.
Set new goals based on your findings. Once you know where you stand, it’s time to set some new goals for your business. Maybe you want to increase your sales by a certain percentage, or maybe you want to cut down on costs by a certain percentage.
Create a plan of action. This is where you put all of those new goals into action. Planning is key to making sure that your goals become a reality.
Implement and track your progress. Put your plan into effect and track your progress along the way. What Are the Benefits of Conducting an Inventory Audit in Dubai?
An inventory audit in the UAE is an important process to ensure the accuracy of your company’s inventory. By following the proper procedures and using the right tools, Farhat & Co., a top audit firm in Dubai, can conduct a thorough and accurate inventory audit for you.
Our qualified auditors can help you develop a plan and an inventory audit checklist. We lay hold of clients’ demands and manage financial statements effectively. We have over 35+ years of experience in providing audit services, in compliance with the rules and regulations set by the UAE government.