Stock Audit Overview
Inventory Stock Audit, Fixed Asset Verification & Warehouse Audit — Bank, Management & Insurance Mandated
Unlike a statutory financial audit that focuses on historical accounting record accuracy, a stock audit is operationally grounded. It physically confirms that the assets a business claims to hold actually exist, are in the condition the books represent, and are appropriately valued. Consequences are immediate and tangible: drawing power is adjusted, assets that cannot be located are written off, insurance claims are settled, and management gets a ground-truth picture of their asset base.
The Three Pillars of Stock Audit
Inventory Stock Audit
Physical verification of raw materials, components, packaging, WIP, and finished goods. Identifies book-to-physical variances, slow-moving and obsolete stock, damaged goods, and computes drawing power for working capital borrowers based on verified eligible inventory value.
Fixed Asset Audit & Verification
Physical examination and register reconciliation of plant, machinery, equipment, vehicles, computers, and furniture. Identifies ghost assets (in register but not physically present) and unrecorded assets. Covers capitalisation review, depreciation verification, and CARO 2020 compliance.
Warehouse Audit
The most comprehensive category — combines physical stock count with systematic review of operational processes, storage conditions, safety compliance, and WMS accuracy. For banks: computes drawing power and confirms the ownership and unencumbered nature of hypothecated goods.
Who Commissions Stock Audits and Why?
| Client Type | Purpose | Typical Frequency | Key Deliverable |
|---|---|---|---|
| Banks & NBFCs | Verify drawing power claimed by borrower; confirm eligible physical stock supports the credit limit | Quarterly or semi-annual (per sanction letter) | Drawing Power Statement + Stock Audit Report in bank's prescribed format |
| Management | ERP validation, theft/pilferage detection, obsolescence assessment, board assurance on inventory figures used for financial reporting | Monthly cycle counts + semi-annual full count | Variance analysis, obsolescence schedule, internal control recommendations |
| Insurance Companies | Verify quantum of inventory/asset loss claimed after fire, flood, theft, or other insured peril | As required on loss event | Forensic-level loss investigation report, defensible before NCDRC |
| Investors & Acquirers | Independent verification of target company inventory quantity, quality, and realisable value in M&A due diligence | As required for transaction | Due diligence stock report affecting purchase price and acquisition structure |
| Regulatory Requirements | CARO 2020 fixed asset verification, Customs bonded warehouse, FSSAI stock condition verification | Per regulatory requirement | Compliance report in prescribed format for the relevant regulatory authority |
Our Stock Audit Process — 7 Steps
Pre-Audit Planning & Scope Confirmation
For bank audits: review sanction letter for drawing power formula, eligible stock categories, and report format. For management audits: confirm objectives. For fixed asset audits: review prior year register, major categories, and recent additions/disposals. Prepare count plans, team schedules, zone maps, and count sheet templates before deployment.
Physical Count Execution — Systematic & Controlled
Counting teams trained in counting across different environments (shelves, racking, bulk storage, production lines), estimation methods for bulk goods, cut-off management, and dual-count methodology for high-value items. All count sheets signed by both auditor team member and client's designated representative for each zone.
System Extract & Book Record Collection
ERP stock ledger extract by item, location, and batch as of the count date — a snapshot taken at the exact moment of counting. For manually maintained records: bin card or stock register as of count date. The accuracy of this extract is critical to avoid apparent timing-difference variances.
Count-to-Book Reconciliation & Variance Analysis
Reconcile physical count results with book extract by SKU or asset category. Investigate material variances above agreed tolerance level: counting error (recount), ERP processing error (journal entry), genuine stock loss (write-off), or unrecorded receipt (entry required).
Quality & Condition Assessment
For inventory: identify near/past expiry, physically damaged, obsolete, and slow-moving items. For fixed assets: identify out-of-service, under repair, redundant, and fully depreciated items. Condition assessment feeds directly into write-down and write-off recommendations.
Drawing Power Computation — Bank Audits
Drawing power = (eligible inventory at cost or NRV, whichever lower × advance rate) + (eligible book debts within stipulated collection period × advance rate) – (creditors). Formula and advance rates as specified in bank's sanction letter. Prepared in bank's prescribed format.
Stock Audit Report Preparation & Submission
Comprehensive report: auditor's overall opinion on reliability of book inventory records; book-to-physical variance summary by major category; drawing power computation (where applicable); quality and condition findings; and internal control recommendations. Prepared in commissioning party's required format.
Technology We Use for Stock Audit
Barcode Scanners
Handheld scanners for barcode-labelled inventory — capture item codes, quantities, and location data digitally, eliminating manual entry errors and significantly speeding reconciliation.
Tablet-Based Count Sheets
Digital count forms allowing team members to enter counts directly, with immediate flagging of items that deviate significantly from book quantity for immediate investigation.
WMS Data Extraction
Real-time location and quantity data extraction from major Warehouse Management System platforms for comparison with physical count results in warehouse audit engagements.
Reconciliation Tools
Purpose-built spreadsheet tools reconciling physical count data (imported from scanner or tablet) with ERP extracts — computing variances and categorising items for follow-up investigation.
Digital Asset Photography
Photographic documentation of each verified fixed asset alongside its asset tag — creating visual evidence of the verification exercise for the fixed asset audit report.
E-Way Bill Cross-Referencing
Post-GST cross-referencing of physical inventory against e-way bill records — a new digital audit trail for goods movements providing an additional verification layer.
Why Choose N D Savla & Associates?
- Bank empanelled — empanelled with several leading public and private sector banks; reports meet each bank's specific format and content requirements
- Multi-location capability — single-location to pan-India multi-location engagements; appropriately sized teams deployed efficiently
- Insurance loss investigation expertise — forensic-level methodology; reports defensible before NCDRC and insurance regulatory bodies
- M&A due diligence speed — experienced in deal-timeline environments where speed, confidentiality, and accuracy are all simultaneously critical
- Concurrent stock audit retainer — dedicated monthly-visit teams for banks with large or high-risk borrowers; deep operational familiarity built over time
- CARO 2020 compliance — fixed asset audit reports structured to support the statutory auditor's CARO 2020 disclosures on physical verification
- E-commerce specialisation — multi-warehouse networks, high-velocity SKU catalogues, returns processing, and 3PL arrangements addressed with specialist methodology
Frequently Asked Questions
What is the difference between a stock audit and a statutory financial audit?
How is drawing power computed, and why does it matter?
How often should stock audits be conducted?
What happens if a stock audit reveals significant shortages vs drawing power?
What is a concurrent stock audit, and how does it differ from periodic?
Can stock audit be conducted without disrupting operations?
Accurate, Timely Stock Audit — Bank, Management or Insurance
Whether bank-mandated, management-driven, or insurance-required — our teams are available for single-location and pan-India multi-location stock audits. Reports meet all bank, regulatory, and stakeholder requirements.
Contact Our Stock Audit Team- 📞 +91 9821 832 683 | +91 9765 000 966
- ✉ nainitsavla@savlagroup.in
- 🏢 Baner Business Bay, Pune | Mon–Sat 10AM–7PM