Inventory Management Audit
Conducting an Inventory Audit in the UAE
An Inventory Audit is an integral part of Inventory management. The UAE is an international hub for exports and imports; hence, many companies maintain physical stock of items. Conducting an inventory audit ensures that the stock written in the financial books is verified against the physical stock tally. Auditing firms in Dubai help companies analyze their stock accurately. Read on to find out more.
Does Your Company Require an Inventory Audit?
Some factors that determine your company requires an Inventory audit are:
1. The volume of stock
If the stock of raw materials, finished goods, or other assets cannot be counted and verified by a single person counting by hand, you need an inventory audit procedure.
2. The type of goods
Suppose the type of goods volume is required to be verified by law. According to the IAS 2, inventory must be measured at its Net Realisable Value.
3. Speculation of phantom inventory.
More than once, when you have required goods or raw material based on the stock count in books but have not found it in the physical inventory, it is called phantom stock. You may face challenges such as loss of time or money to arrange the stock from elsewhere. Several reasons, such as theft and data entry and accounting errors, can cause phantom inventory and is one of the most important aspects that should be included under any inventory audit procedure.
4. If the goods are placed at a third-party warehousing
Some companies require inventory audit in Dubai because their stocks are stored in third-party warehouses within Dubai or other emirates.
5. You have an inventory management process.
An inventory management audit process is incomplete without a proper internal or external inventory audit.
Inventory Audit Procedure in Dubai
Farahat and Co is your partner in conducting an internal inventory audit or an external inventory audit for your company. Every company has a different size and volume of goods they manage, and hence we understand the same and provide a custom inventory audit process for our clients. Our inventory audit report aims to reduce our client's stress when it comes to errors in inventory management and the subsequent rise in working capital. Analytical ratios such as inventory turnover ratio or unit costs of inventory are a crucial part of the financial analysis of the stock. Here is how it works:
1. Physical Inventory Count Audit
Each item stocked has a bar code, and hence the movement of the goods is tracked based on these bar codes or batch codes. A physical inventory count audit ensures that the stock count in financial records is the same as physical stock.
2. Cut off Analyzation
You will receive a qualified audit opinion on inventory from our experts that will examine the stock based on the company's cut off period, which marks the inventory coming in and going out, considering a buffer of stock that is in the movement to go in and move out of the warehouse. This helps in accounting for the inventory without any errors.
3. ABC Analysis or High-Value Item inventory
Every item in the in-stock has its value, but the auditor has to spend some extra time to evaluate the goods of higher value so they can categorise them—A for high-value goods, B for medium and C for low-value goods.
4. Freight Cost Analysis
When inventory has to move domestically or internationally, several costs are associated. An inventory audit in Dubai will consider all such expenses, including breakage or damage during transit to the destination. Freight Cost Analysis also plays an important role when the subsequent rises in transportation costs occur, viz rising fuel prices due to inflation, thus managing the stock's price accordingly.
5. Finished goods inventory
Finished goods inventory is the inventory audit of goods ready to be sold. An inventory audit will consider the value of the goods and simultaneously account for their accurate value in the financial books.
6. Overhead Analysis
Holding of stock has indirect costs related to it, such as rent of the warehouse, the salary of the security guard, and utilities are a few examples. The overhead analysis is an optional step in an inventory audit. Still, it plays a significant role in accurately calculating the stock cost and thus helps in budgeting for the following year.
7. Direct Labor costs
An inventory audit helps trace the direct labor costs related to the production of goods. It includes verification of job cards, timesheets, and even third-party labour contracts.
8. Work in progress inventory
The percentage of goods in production is calculated but determines the work in progress inventory. Inventory is in use or about to be used based on the percentage of work completed. Hence being a crucial step in an inventory management audit.
9. Auditing inventory allowance
Inventory allowance summarizes the general inventory allowance related to obsolete inventory, scraps, etc. This audit is conducted by physically observing the inventory usage during production to determine whether the stock is obsolete or scrap. It also helps select FIFO or LIFO methods of managing the inventory.
10. Verification of ownership
Stock is an asset, and the company must own it. The inventory audit in Dubai ensures that physical stock belongs to the company and not to a customer-owned inventory or is an inventory on consignment from suppliers.
Increase Your Profits with an Inventory Audit in Dubai
Conducting an inventory audit in Dubai aims to reduce losses due to erroneous inventory accounting and poor inventory management. Farahat and Co is one of the leading inventory audit companies that has been conducting internal and external audits for companies across the UAE.
Our team of qualified expert auditors are keen analysts who have helped clients regain a stronghold in their inventory management procedure. We use the latest inventory audit software and support all types of enterprises to accurately remodel their procurements and supply chain approach based on a customized checklist.
Our auditors have assisted companies in successfully auditing and transiting financial data when companies upgrade to automated inventory management software. Click here to book a consultation today!
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