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Internal Audit Inventory : Why an Inventory Audit in Dubai is Necessary for E-commerce

Inventory auditing for eCommerce businesses reveals the inventory items that are either overstocked or understocked. Finding the difference between inventory and accounting records allows businesses to make accounting adjustments for any shrinkage. Through an inventory audit in Dubai, the financials of your business will reflect more accurate values.

Why Inventory Audits are Important for an E-commerce Business

E-commerce inventory is quite different from physical retail stores. This is due to sales that take place anywhere around the globe. Sales are also more unpredictable. Using the expertise of professionals in conducting an inventory audit in the UAE will help with the following:

  • Calculate profit 

Inventory auditing helps in calculating accurate profits. The accuracy of inventory accounting has an impact on your bottom line. Accounting and tracking the changes in your inventory's value over time and relating it to manufacturing and other costs can impact your book of account drastically. An inventory audit will prevent inventory shrinkage and identify costly, slow-moving goods. 

Inventory shrinkage occurs whenever the number of products/goods in stock is actually less than what's recorded on the list of inventory. This is often due to goods being damaged, stolen or lost anywhere between the manufacture and point of sale. 

  • Budget with more accuracy 

If you currently don’t have a precise method for tracking the value of your inventory, then you won’t be able to budget for your next batch or the inventory that you’d have to purchase. An inventory audit in Dubai will help you in budgeting better and more accurately. You’ll know the exact inventory you are running through, as well as how much stock you need to keep up with consumer demand. 

  • Find the inefficiencies 

An audit firm in Dubai can help with finding inefficiencies, most especially inventory that is not selling quickly and eating up your capital. Seasoned auditors in Dubai, UAE can identify the products that sell out quickly, causing frequent stockouts, as well as inaccuracies with the inventory stocking and storage procedures. Let a professional help you find the operational errors that can red-line your business. 

The information that you get from an inventory audit in UAE can be used in improving your business's financial health. You can discontinue the products that are unsuccessful, plus you can double down on the ones that are working.  optimize the areas of your business’ supply chain starting from the manufacturing to the warehouse locations with an audit service. 

  • Optimize the inventory holding

Holding costs are the sum of costs in relation to carrying inventory. This includes labor, rent, insurance, and labor, combined with the value of expired, out-of-date, and damaged goods. The longer you are holding inventory that is unusable, the more money you’ll pay. An inventory audit firm in the UAE will help you in limiting these factors. 

Read More : How to Perform Inventory Audit in UAE?.

Procedures for Conducting Inventory Auditing in Dubai

To audit inventory, auditors in Dubai choose the method which makes the most sense, depending on the purpose of the audit.

The most common procedures used are as follows:

  • Cutoff analysis – with this inventory audit analysis, operations are paused, including shipping and receiving inventory during the physical count. This is to make sure that nothing goes unaccounted for. 
  • Analytical procedures – this will involve making a comparison of gross margins, unit costs for inventory, and/or inventory turnover ratio with previous years. 
  • Physical inventory count – it will make sure the numbers in your system match with the physical stock by counting each unit. Using product barcodes and inventory barcode scanners will help. 
  • ABC analysis – this is when items of different volumes and value are grouped together e.g. low-value products, mid-tier products, and high-value items. You can choose to store the items this way as it is often easier for auditors to pay close attention to the inventory items that are high in value. 
  • Finished products cost analysis – it's ideal if you make your own products. This is because it will demonstrate when a product is ready for sale. An auditor will then value inventory for a current accounting period. An auditor will test the inventory in order to make sure the books of account are accurate. 
  • Freight cost analysis – this will determine the cost of getting the things from one place to another e.g. freight shipping costs. It will also track the time that it takes to ship items. The documentation accounts for units that are in transit, including ones that are damaged or lost while in transit. 

Read More : Everything to Know About E commerce Accounting in UAE.

Farahat & Co is one of the leading audit firms in Dubai and the rest of the emirates. For over three decades, the firm has provided support to businesses that belong in a wide range of industries and sectors. To know more about audits in UAE, call us to book an initial consultation!

Jose’s entire educational and professional career has circled around audit and assurance. While in India, he became a CPA and worked as an accountant and an auditor. Afterwards, he relocated to Dubai, where he joined Farahat & Co. as an auditor. He is currently assisting UAE mainland and free zone businesses with their compliance needs. With a reputation for proficiency, quality, and reliability, clients refer to Mr. Jose for independent assessments of organizations structures and operations.