The main reason businesses and companies perform audits is to ensure that the inventory shown on their balance sheets matches the physical inventory in storage.
Inventory includes everything from goods stored in the business/company premises, goods stored off-premises, goods on consignment with other businesses, goods on transit, supplies, and raw materials.
The process of making sure that the inventory listed on paper actually exists is what is known as inventory auditing.
This process is crucial for the smooth running and success of any commercial enterprise.
Inventory auditors are the professionals who are tasked by business owners and company managers to do a thorough and accurate count of inventory.
The auditors need to familiarise themselves with every aspect of the business before they can proceed with any form of inventory auditing.
So before you can perform a proper audit of inventory, you must do some prior investigative work to establish what to expect as well as have an idea of how everything should be.
Different businesses have different structures and departments, and this means that you cannot use the same audit processes and procedures for different clients.
Following are the things to check for when performing an inventory audit:
1. Identify Inventory Locations
The first thing you should establish is the physical location of all inventory.
In some businesses, inventory may be stored in one particular location which makes it easy to count everything.
In other businesses, inventory may be spread out in multiple locations which means more work and maybe even manpower is required to carry out a thorough and comprehensive audit.
Huge businesses and companies typically require large teams of auditors because additional people can cover more ground within a short period of time.
2. Review Inventory Policies and Procedures
The next important thing you should check is the business’s day-to-day procedures.
You can get this information directly from the business being audited.
The information should lay out key business procedures and policies used in managing inventory.
How is the inventory stored? Who’s in charge of certain items? How often is the inventory counted?
These are some of the questions you will be looking to find answers to when reviewing the client’s inventory policies and procedures.
3. Map of the Premises
Check to see where exactly the inventory is stored.
Are the storage locations safe and secure? Is the inventory stored in rooms or warehouses? How accessible are these locations to outsiders?
Basically, you should strive to know the physical layout of the business premises.
4. Seize Operations
It’s not easy to do an inventory audit while business operations are still ongoing.
Business owners and managers should stop any production or manufacturing before an audit of their inventory can be done.
For example, let’s say you are auditing a retail business, the store in question should be closed to the public during the audit process.
Carrying on with operations during an inventory audit process can make things more difficult for both the auditors and employees.
5. Movement of Inventory
You should check for any unauthorised movement of inventory during the audit process.
Any movement of items during the audit process should immediately raise your attention.
All inventory should remain in their specific areas of storage up until the count is finished.
Inventory should also not be moved between manufacturing facilities or retail shops during the audit.
Everyone in the business needs to work hand-in-hand to ensure that set procedures and policies are followed for a smooth inventory audit process.
Any mistakes during the inventory audit process may warrant a repeat of the process which leads to the waste of both time and money.
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