08 Stock Audit

Stock Audit

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Stock AuditStock Audit
ByBy
CA. Rajkumar S AdukiaCA. Rajkumar S Adukia
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Meaning of StockMeaning of Stock
According to AS -2 Valuation of Inventories, According to AS -2 Valuation of Inventories,
stock or inventory is defined as followsstock or inventory is defined as follows
““Inventories are assets:Inventories are assets:

(a) held for sale in the ordinary (a) held for sale in the ordinary
course of business;course of business;

(b) in the process of production for (b) in the process of production for
such sale; orsuch sale; or

(c) in the form of materials or (c) in the form of materials or
supplies to be consumed insupplies to be consumed in
the production process or in the the production process or in the
rendering of services.”rendering of services.”

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Meaning of StockMeaning of Stock
Inventories thus normally comprises of Inventories thus normally comprises of

stores,stores,

spares parts,spares parts,

loose tools,loose tools,

maintenance supplies,maintenance supplies,

raw materials including components,raw materials including components,

work in process,work in process,

finished goods including by-products,finished goods including by-products,

waste or by-products, etc.waste or by-products, etc.

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Meaning of DebtorsMeaning of Debtors
A debtor represent the amount due to A debtor represent the amount due to
an entity an entity

for goods sold or for goods sold or

a service rendered or a service rendered or

in respect of other similar contractual in respect of other similar contractual
obligations obligations
but amount includes such amounts but amount includes such amounts
which are in the nature of loans and which are in the nature of loans and
advances advances

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Inventory & ReceivablesInventory & Receivables

Maintenance of inventory is a Maintenance of inventory is a major major
part of working capital part of working capital
requirementrequirement of any unit. of any unit.

Essential componentsEssential components , of the total , of the total
assets of an entity in general and assets of an entity in general and
current assets in particular are current assets in particular are
Inventories and Debtors. Inventories and Debtors.

Stock and Debtors indicate the Stock and Debtors indicate the
health of a companyhealth of a company

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Valuation of InventoriesValuation of Inventories

Different methods of valuation are Different methods of valuation are
adopted, depending upon the type of adopted, depending upon the type of
Inventories, in particular and the type of Inventories, in particular and the type of
the business in general. the business in general.

The Inventories should be valued at cost The Inventories should be valued at cost
or market price, whichever is lower.or market price, whichever is lower.

The fundamental concept is that provision The fundamental concept is that provision
for losses should be made and unrealized for losses should be made and unrealized
profits should not be considered profits should not be considered

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Method of ValuationMethod of Valuation

The Institute of Chartered Accountants has The Institute of Chartered Accountants has
prescribed the methods that are prescribed the methods that are
mandatory for the valuation of inventories, mandatory for the valuation of inventories,
by means of the Accounting Standard – 2, by means of the Accounting Standard – 2,
which deals with the valuation of which deals with the valuation of
inventories. inventories.

These methods are Specific Identification These methods are Specific Identification
method, First-in-First-out method and method, First-in-First-out method and
Weighted Average Method. Weighted Average Method.

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Valuation of Different Types of Valuation of Different Types of
InventoriesInventories

The Institute of Chartered The Institute of Chartered
Accountants of India defines, Accountants of India defines,
Inventories to include, stores, spare Inventories to include, stores, spare
parts, loose tools, raw materials, parts, loose tools, raw materials,
materials in process, finished materials in process, finished
products, waste or by products, etc products, waste or by products, etc

Each type of Inventories entails Each type of Inventories entails
different methods of valuation different methods of valuation
depending on their unique depending on their unique
characteristics. characteristics.

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Valuation of Different Types of Valuation of Different Types of
InventoriesInventories

For computing accumulation of huge inventories the number of days For computing accumulation of huge inventories the number of days
holding of Inventories etc, the following method may be followed:holding of Inventories etc, the following method may be followed:
•For Raw Material:For Raw Material:

= = Actual Holding_ X 365 ____ Actual Holding_ X 365 ____

Annual Raw Material ConsumedAnnual Raw Material Consumed
•For Inventories in Process:For Inventories in Process:

= = Actual holding X 365____ Actual holding X 365____

Annual cost of productionAnnual cost of production
•For Finished Goods:For Finished Goods:

= = Actual holding X 365____ Actual holding X 365____

Annual cost salesAnnual cost sales
•For sundry debtors:For sundry debtors:

= = Actual outstanding debtor’s X 365____ Actual outstanding debtor’s X 365____

Annual salesAnnual sales
•for sundry creditorsfor sundry creditors

= = Actual sundry creditors’ X 365____ Actual sundry creditors’ X 365____

Annual purchasesAnnual purchases

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Bank BorrowingBank Borrowing

Entities obtain loans from banks in Entities obtain loans from banks in
the form of the form of cash creditcash credit against against
hypothecation of hypothecation of Inventories and Inventories and
DebtorsDebtors

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Consortium LendingConsortium Lending
This approach to lending also called the This approach to lending also called the Single Single
Window Lending Window Lending was introduced by the RBI in was introduced by the RBI in
1974. Accordingly, more than one bank finances 1974. Accordingly, more than one bank finances
a single borrower requiring large credit limit. It a single borrower requiring large credit limit. It
(a)(a)enables banks to spread risk of lending, enables banks to spread risk of lending,
(b)(b)broke the monopoly of big banks to have large broke the monopoly of big banks to have large
accounts, accounts,
(c)(c)enables banks to share experience and enables banks to share experience and
expertise, expertise,
(d)(d)introduces uniformity in approaches to lending, introduces uniformity in approaches to lending,
(e)(e)enables banks to pool resources, and enables banks to pool resources, and
(f)(f)checks multiple financing of the same account.checks multiple financing of the same account.

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Cash Credit FacilityCash Credit Facility

Drawing is permitted against the Drawing is permitted against the
Inventory of Goods in a Cash Credit Inventory of Goods in a Cash Credit
FacilityFacility

Both Deposits and Withdrawals are Both Deposits and Withdrawals are
permitted in this facilitypermitted in this facility

Cash credit facility is offered on a Cash credit facility is offered on a
permanent basis, as long as the permanent basis, as long as the
business goes on.business goes on.

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Types of Cash Credit FacilityTypes of Cash Credit Facility
Cash credit facility is of two types based on the nature of Cash credit facility is of two types based on the nature of
charge on goods taken as security by bank.charge on goods taken as security by bank.
(i) (i) Cash credit - PledgeCash credit - Pledge: When the possession of the goods : When the possession of the goods
is with the bank. The physical control of the goods is is with the bank. The physical control of the goods is
exercised by the bank.exercised by the bank.
(ii) (ii) Cash credit- HypothecationCash credit- Hypothecation : When the possession of : When the possession of
the goods remains with the borrower and a floating charge the goods remains with the borrower and a floating charge
over the inventories is created in favour of the bank. The over the inventories is created in favour of the bank. The
borrower has complete control over the goods and the borrower has complete control over the goods and the
drawings in the account are permitted on the basis of drawings in the account are permitted on the basis of
Inventories statements submitted by the borrower. Inventories statements submitted by the borrower.

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Inventory AuditInventory Audit
Inventories audit is about the Inventories audit is about the
authentication of authentication of

quantity, quantity,

quality, quality,

composition and composition and

valuation valuation
of the inventories and debtors. of the inventories and debtors.

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Stock Audit CycleStock Audit Cycle
The five stages in any audit are:The five stages in any audit are:

Pre-engagementPre-engagement

Understanding the entityUnderstanding the entity

Audit planningAudit planning

Substantive proceduresSubstantive procedures

ReportingReporting

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Inventories Audit in BanksInventories Audit in Banks
The term Inventories Audit in the context of The term Inventories Audit in the context of
banks refers to banks refers to

verification and valuation of the entire verification and valuation of the entire
gamut of current assets, current liabilities, gamut of current assets, current liabilities,
loans and advances, diversion of funds, loans and advances, diversion of funds,
application of funds, application of funds,

accuracy of Inventories statements,accuracy of Inventories statements,

arriving at the revised drawing power and arriving at the revised drawing power and

any other matter connected with the credit any other matter connected with the credit
administration by the banks.administration by the banks.

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Inventories Audit in BanksInventories Audit in Banks

The main purpose of audit in banks The main purpose of audit in banks
is to get an assurance on the quality is to get an assurance on the quality
and quantity of loan security.and quantity of loan security.

Inventories Audit in Bank verifies the Inventories Audit in Bank verifies the
followingfollowing
•Physical Verification of the SecurityPhysical Verification of the Security
•Valuation of SecurityValuation of Security
•Security of the SecuritySecurity of the Security

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Meaning of MortgageMeaning of Mortgage
Sec 58(a) of the Transfer of Property Act 1882 deals with Sec 58(a) of the Transfer of Property Act 1882 deals with
mortgage. Accordingly, the necessary ingredients of a mortgage. Accordingly, the necessary ingredients of a
mortgage are: -mortgage are: -
1. Transfer of interest in specific immovable property1. Transfer of interest in specific immovable property
2. Transfer is for the purpose of securing the payment of 2. Transfer is for the purpose of securing the payment of
money advanced or to be advanced by way of loan.money advanced or to be advanced by way of loan.
3. It may be existing and future debt.3. It may be existing and future debt.
4. It may be also for performance of an engagement, which 4. It may be also for performance of an engagement, which
may lead to financial liability.may lead to financial liability.

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Need for Inventory AuditNeed for Inventory Audit
An Inventories audit is essential for the An Inventories audit is essential for the
following purposes:following purposes:

To give the bankers an assurance To give the bankers an assurance
regarding the following:regarding the following:
•That a suitable environment for preservation of That a suitable environment for preservation of
Inventories existsInventories exists
• That a responsible person for safeguarding the That a responsible person for safeguarding the
Inventories is always presentInventories is always present
•That degraded Inventories have been written That degraded Inventories have been written
offoff
•That adequate safeguards exist against fire That adequate safeguards exist against fire
and natural calamitiesand natural calamities

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Need for Inventory AuditNeed for Inventory Audit
•That physical inventories tally with the That physical inventories tally with the
Inventories statements submitted to bankInventories statements submitted to bank
•That the pledged/hypothecated Inventories is That the pledged/hypothecated Inventories is
realizablerealizable
• That Inventories is owned by the borrower That Inventories is owned by the borrower
•That all sanction terms have been adhered toThat all sanction terms have been adhered to
•That inventories are not stagnating and That inventories are not stagnating and
becoming obsoletebecoming obsolete

To investigate, wherever the party is not To investigate, wherever the party is not
submitting periodic Inventories submitting periodic Inventories
statements regularly.statements regularly.

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Need for Inventory AuditNeed for Inventory Audit

To investigate, where the accounts To investigate, where the accounts
have been marked as substandard.have been marked as substandard.

To find out reasons when there are To find out reasons when there are
too many qualifying remarks about too many qualifying remarks about
inventories and receivables in the inventories and receivables in the
Auditor’s report on the Balance Auditor’s report on the Balance
Sheet of the borrowerSheet of the borrower

To find out suspect dealing in To find out suspect dealing in
lending procedurelending procedure

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Need for Inventory AuditNeed for Inventory Audit

To make the banks aware of their To make the banks aware of their
right of enforcement of the security right of enforcement of the security
interest provided in the interest provided in the
Securitization and Reconstruction of Securitization and Reconstruction of
Financial Assets and enforcement of Financial Assets and enforcement of
Security Interest Act, 2002.Security Interest Act, 2002.

To fulfill Head Office requirementTo fulfill Head Office requirement

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Scope of Inventory AuditScope of Inventory Audit

The scope of the audit covers all the The scope of the audit covers all the
aspects that have a direct impact on the aspects that have a direct impact on the
working capital of the unit as well as the working capital of the unit as well as the
aspects relating to Inventories that have a aspects relating to Inventories that have a
bearing on the bank finance. bearing on the bank finance.

It encompasses the following aspects:It encompasses the following aspects:
•Physical verification of inventoriesPhysical verification of inventories
•Verification of condition of storageVerification of condition of storage
•Valuation of inventories and pointing out Valuation of inventories and pointing out
variances variances

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Scope of Inventory AuditScope of Inventory Audit
•Valuation of obsolete / non-moving Valuation of obsolete / non-moving
InventoriesInventories
•Age-wise categorization of inventoriesAge-wise categorization of inventories
•Evaluation of the Inventories management by Evaluation of the Inventories management by
the companythe company
•Reconciliation of Inventories statements Reconciliation of Inventories statements
submitted with the accounting records submitted with the accounting records
maintained by borrowers particularly, relating maintained by borrowers particularly, relating
to quantity, rate, value of inventories, age, to quantity, rate, value of inventories, age,
marketability, etcmarketability, etc
•Verification and evaluation of sundry Verification and evaluation of sundry
creditors indicating separately those relating creditors indicating separately those relating
to Inventories and their relationship with to Inventories and their relationship with
bank financebank finance

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Scope of Inventory AuditScope of Inventory Audit
•commenting upon the sources of the raw commenting upon the sources of the raw
materials, i.e., whether any credit is available materials, i.e., whether any credit is available
for the material and which of the items are for the material and which of the items are
available against cash paymentsavailable against cash payments
•Review of the Inventories valuation systemReview of the Inventories valuation system
•Age-wise and value-wise qualification of Age-wise and value-wise qualification of
debtorsdebtors
•Determination of the drawing powerDetermination of the drawing power
•Determining adequacy of the insurance coverDetermining adequacy of the insurance cover
•Verification of documents/ securitiesVerification of documents/ securities

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Scope of Inventory AuditScope of Inventory Audit
•Commenting upon the comparative Commenting upon the comparative
Profitability and Inventories ratioProfitability and Inventories ratio
•Ensuring that the compliance of the Ensuring that the compliance of the
terms and conditions of limit sanctionedterms and conditions of limit sanctioned
•Verification of transactions with sister Verification of transactions with sister
concerns, unsecured Loans to Directors concerns, unsecured Loans to Directors
and othersand others
•Any other matters of interest to the Any other matters of interest to the
bankbank

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When to perform Stock AuditWhen to perform Stock Audit

Where there are over dues in term loans Where there are over dues in term loans
or other accounts, where the banks’ or other accounts, where the banks’
stake is high.stake is high.

Where there is evidence of pressure on Where there is evidence of pressure on
the borrower from the creditorsthe borrower from the creditors

Where the inventories are stagnating.Where the inventories are stagnating.

Where party is not submitting periodic Where party is not submitting periodic
Inventories statements regularlyInventories statements regularly

Where there are grounds to suspect that Where there are grounds to suspect that
the position of chargeable current assets the position of chargeable current assets
indicated may not be correct.indicated may not be correct.

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When to perform Stock AuditWhen to perform Stock Audit

Where there are too many qualifying remarks Where there are too many qualifying remarks
about inventories and receivables in the auditors about inventories and receivables in the auditors
report on the balance sheet of a borrowerreport on the balance sheet of a borrower

Where the accounts is marked as sub-standardWhere the accounts is marked as sub-standard

Suspect dealings in lending procedure, Suspect dealings in lending procedure,
jeopardizing advances givenjeopardizing advances given

An errant borrower, where Inventories audit is An errant borrower, where Inventories audit is
needed to supplement actions of the branches for needed to supplement actions of the branches for
recovery.recovery.

Any other valid reason such as mismanagement, Any other valid reason such as mismanagement,
heavy losses, lockout, strikes etcheavy losses, lockout, strikes etc

Fulfilling the criteria fixed by the head office to Fulfilling the criteria fixed by the head office to
get done Inventories audit. get done Inventories audit.

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Non Performing AssetsNon Performing Assets

An asset, including a leased asset, An asset, including a leased asset,
becomes non-performing when it ceases becomes non-performing when it ceases
to generate income for the bank. to generate income for the bank.

With effect from March 31, 2004, a non-With effect from March 31, 2004, a non-
performing asset (NPA) shall be a loan performing asset (NPA) shall be a loan
or an advance where;or an advance where;
•Interest and/or installment of principal Interest and/or installment of principal
remain overdue for a period of more than 90 remain overdue for a period of more than 90
days in respect of a term loan,days in respect of a term loan,
•the account remains ‘out of order’ for a the account remains ‘out of order’ for a
period of more than 90 days, in respect of an period of more than 90 days, in respect of an
Overdraft/Cash Credit (OD/CC),Overdraft/Cash Credit (OD/CC),

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Non Performing AssetsNon Performing Assets
•the bill remains overdue for a period of more the bill remains overdue for a period of more
than 90 days in the case of bills purchased than 90 days in the case of bills purchased
and discounted,and discounted,
•interest and/or installment of principal interest and/or installment of principal
remains overdue for two harvest seasons but remains overdue for two harvest seasons but
for a period not exceeding two half years in for a period not exceeding two half years in
the case of an advance granted for the case of an advance granted for
agricultural purposes, andagricultural purposes, and
•Any amount to be received remains overdue Any amount to be received remains overdue
for a period of more than 90 days in respect for a period of more than 90 days in respect
of other accounts.of other accounts.

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Special Points on Stock AuditSpecial Points on Stock Audit
•If the stock statement as shown in the If the stock statement as shown in the
hypothecation statement does not tally with hypothecation statement does not tally with
the stocks as in the balance sheet , then the stocks as in the balance sheet , then
appropriate action should be taken to find appropriate action should be taken to find
reasons for the differencesreasons for the differences
•It should be seen that the stocks have been It should be seen that the stocks have been
properly valued, after considering the properly valued, after considering the
relevant accounting principles, Accounting relevant accounting principles, Accounting
standards (AS) and Engagement Standards standards (AS) and Engagement Standards
[ earlier Known as Auditing and Assurance [ earlier Known as Auditing and Assurance
standards (AAS)]standards (AAS)]

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Special Points on Stock AuditSpecial Points on Stock Audit
•It should be seen that Current Assets It should be seen that Current Assets
are not over-stated.are not over-stated.
•It should be seen that the Turnover is It should be seen that the Turnover is
not over-stated.not over-stated.
•It should be seen that the stocks that It should be seen that the stocks that
are genuinely owned by the borrower are genuinely owned by the borrower
are shown in the accountsare shown in the accounts

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ICAI PronouncementsICAI Pronouncements

There are no guidance notes or There are no guidance notes or
standards prescribed for Inventories standards prescribed for Inventories
audit, the auditors should conduct audit, the auditors should conduct
the audit based on the generally the audit based on the generally
accepted auditing practices and to accepted auditing practices and to
the best of his judgment and ability. the best of his judgment and ability.

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Relevant StandardsRelevant Standards

AS 2 – Valuation of InventoriesAS 2 – Valuation of Inventories

IAS 2 – Accounting for InventoriesIAS 2 – Accounting for Inventories

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Relevant RBI NotificationsRelevant RBI Notifications

RBI/2010-11/74 DBOD.No.BP.BC.21 /21.04.048/2010-11 – RBI/2010-11/74 DBOD.No.BP.BC.21 /21.04.048/2010-11 –
11
stst
July 2010 – Master Circular - Prudential norms on July 2010 – Master Circular - Prudential norms on
Income Recognition, Asset Classification and Provisioning Income Recognition, Asset Classification and Provisioning
pertaining to Advances pertaining to Advances

According to Para 4.2.4According to Para 4.2.4
•The classification of an asset as NPA should be based on the The classification of an asset as NPA should be based on the
record of recovery. Bank should not classify an advance record of recovery. Bank should not classify an advance
account as NPA merely due to the existence of some account as NPA merely due to the existence of some
deficiencies which are temporary in nature such as non-deficiencies which are temporary in nature such as non-
availability of adequate drawing power based on the latest availability of adequate drawing power based on the latest
available stock statement, balance outstanding exceeding the available stock statement, balance outstanding exceeding the
limit temporarily, non-submission of stock statements and limit temporarily, non-submission of stock statements and
non-renewal of the limits on the due date, etc. In the matter non-renewal of the limits on the due date, etc. In the matter
of classification of accounts with such of classification of accounts with such
deficiencies banks may follow the following guidelines: deficiencies banks may follow the following guidelines:

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Relevant RBI NotificationsRelevant RBI Notifications
•i) Banks should ensure that drawings in the i) Banks should ensure that drawings in the
working capital accounts are covered by the working capital accounts are covered by the
adequacy of current assets, since current adequacy of current assets, since current
assets are first appropriated in times of assets are first appropriated in times of
distress. Drawing power is required to be distress. Drawing power is required to be
arrived at based on the stock statement which arrived at based on the stock statement which
is current. However, considering the is current. However, considering the
difficulties of large borrowers, stock difficulties of large borrowers, stock
statements relied upon by the banks for statements relied upon by the banks for
determining drawing power should not be older determining drawing power should not be older
than three months. The outstanding in the than three months. The outstanding in the
account based on drawing power calculated account based on drawing power calculated
from stock statements older than three from stock statements older than three
months, would be deemed as irregular.months, would be deemed as irregular.

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Relevant RBI NotificationsRelevant RBI Notifications

A working capital borrowal account A working capital borrowal account
will become NPA if such irregular will become NPA if such irregular
drawings are permitted in the drawings are permitted in the
account for a continuous period of 90 account for a continuous period of 90
days even though the unit may be days even though the unit may be
working or the borrower's financial working or the borrower's financial
position is satisfactory. position is satisfactory.

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Relevant RBI Notification Relevant RBI Notification

ii) Regular and ad hoc credit limits need to be ii) Regular and ad hoc credit limits need to be
reviewed/ regularised not later than three reviewed/ regularised not later than three
months from the due date/date of ad months from the due date/date of ad
hoc sanction. In case of constraints such as non-hoc sanction. In case of constraints such as non-
availability of financial statements and other data availability of financial statements and other data
from the borrowers, the branch should furnish from the borrowers, the branch should furnish
evidence to show that renewal/ review of credit evidence to show that renewal/ review of credit
limits is already on and would be completed soon. limits is already on and would be completed soon.
In any case, delay beyond six months is not In any case, delay beyond six months is not
considered desirable as a general discipline. considered desirable as a general discipline.
Hence, an account where the regular/ ad Hence, an account where the regular/ ad
hoc credit limits have not been reviewed/ hoc credit limits have not been reviewed/
renewed within 180 days from the due date/ date renewed within 180 days from the due date/ date
of ad hoc sanction will be treated as NPA.of ad hoc sanction will be treated as NPA.

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Relevant RBI NotificationRelevant RBI Notification

Para 5.3 on Doubtful Assets –Para 5.3 on Doubtful Assets –
With a view to bringing down divergence arising out With a view to bringing down divergence arising out
of difference in assessment of the value of of difference in assessment of the value of
security, in cases of NPAs with balance of Rs. 5 security, in cases of NPAs with balance of Rs. 5
crore and above stock audit at annual intervals by crore and above stock audit at annual intervals by
external agencies appointed as per the external agencies appointed as per the
guidelines approved by the Board would be guidelines approved by the Board would be
mandatory in order to enhance the reliability on mandatory in order to enhance the reliability on
stock valuation. Collaterals such as immovable stock valuation. Collaterals such as immovable
properties charged in favour of the bank should properties charged in favour of the bank should
be got valued once in three be got valued once in three
years by valuers appointed as per the years by valuers appointed as per the
guidelines approved by the Board of Directors guidelines approved by the Board of Directors

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Relevant RBI NotificationRelevant RBI Notification

Lending under Consortium Arrangement / Lending under Consortium Arrangement /
Multiple Banking ArrangementsMultiple Banking Arrangements - RBI/2008- - RBI/2008-
2009/379 - DBOD.No. 2009/379 - DBOD.No.
BP.BC.110/08.12.001/2008-09 - February 10, BP.BC.110/08.12.001/2008-09 - February 10,
2009 – Annexure 1 – Part II - 2009 – Annexure 1 – Part II - Certifications of Certifications of
borrowal companies by chartered borrowal companies by chartered
accountants / company secretaries/cost accountants / company secretaries/cost
accountantsaccountants - Terms of reference for stock audit - Terms of reference for stock audit
are to be spelt out clearly by the Banks, so that are to be spelt out clearly by the Banks, so that
the Chartered Accountants can give focused the Chartered Accountants can give focused
attention to such areas.attention to such areas.

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Relevant RBI NotificationRelevant RBI Notification

Lending under Consortium Lending under Consortium
Arrangement / Multiple Banking Arrangement / Multiple Banking
ArrangementsArrangements - RBI/2008-2009/379 - - RBI/2008-2009/379 -
DBOD.No. BP.BC.110/08.12.001/2008-09 DBOD.No. BP.BC.110/08.12.001/2008-09
- February 10, 2009 – Annexure II – - February 10, 2009 – Annexure II –
Revised Format under Multiple Banking Revised Format under Multiple Banking
Arrangement Credit Information Exchange Arrangement Credit Information Exchange
– Part IV – Credit Information Report – – Part IV – Credit Information Report –
III. Compliance with Financial Covenants III. Compliance with Financial Covenants
– Stock Statement/ Financial Data– Stock Statement/ Financial Data

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Stock Audit ReportStock Audit Report

Format for stock audit report may vary from bank Format for stock audit report may vary from bank
to bank. to bank.

A stock audit report should cover the following A stock audit report should cover the following
aspectsaspects
•Compliance with terms and conditions of sanction.Compliance with terms and conditions of sanction.
•Timely & adequate submission of stock statements & Timely & adequate submission of stock statements &
other important financial information.other important financial information.
•Account operations – overdrawing, credit summation Account operations – overdrawing, credit summation
and cash withdrawals.and cash withdrawals.
•Drawing power calculations by banks and by the Drawing power calculations by banks and by the
auditors & discrepancies, if any along with the reasons.auditors & discrepancies, if any along with the reasons.

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Stock Audit ReportStock Audit Report
•Physical maintenance and storage of stock and Physical maintenance and storage of stock and
adequacy of facilities at the borrowers place.adequacy of facilities at the borrowers place.
•Systems / procedures implemented by Systems / procedures implemented by
borrower to identify the slow and non-moving borrower to identify the slow and non-moving
stock items.stock items.
•Borrower’s Management information system, Borrower’s Management information system,
its adequacy & Internal controls to safeguard its adequacy & Internal controls to safeguard
stock.stock.
•Method of valuation of stock, time interval for Method of valuation of stock, time interval for
valuation and adequacy & sufficiency of valuation and adequacy & sufficiency of
procedures thereof.procedures thereof.
•Insurance of stock.Insurance of stock.
•Verification of Debtors. Verification of Debtors.

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About the AuthorAbout the Author

CA. Rajkumar S Adukia is an eminent business CA. Rajkumar S Adukia is an eminent business
consultant, academician, writer, and speaker. He is consultant, academician, writer, and speaker. He is
the senior partner of Adukia & Associates.the senior partner of Adukia & Associates.

In addition to being a Chartered Accountant, Company In addition to being a Chartered Accountant, Company
Secretary, Cost Accountant, MBA, Dip IFR (UK), Mr. Secretary, Cost Accountant, MBA, Dip IFR (UK), Mr.
Adukia also holds a Degree in Law and Diploma in Adukia also holds a Degree in Law and Diploma in
Labor Laws and IPR. Labor Laws and IPR.

Mr. Adukia, a rank holder from Bombay University Mr. Adukia, a rank holder from Bombay University
completed the Chartered Accountancy examination with 1st completed the Chartered Accountancy examination with 1st
Rank in Inter CA & 6th Rank in Final CA, and 3rd Rank in Rank in Inter CA & 6th Rank in Final CA, and 3rd Rank in
Final Cost Accountancy Course in 1983.Final Cost Accountancy Course in 1983.

He started his practice as a Chartered Accountant on 1st He started his practice as a Chartered Accountant on 1st
July 1983, in the three decades following which he left no July 1983, in the three decades following which he left no
stone unturned, be it academic expertise or professional stone unturned, be it academic expertise or professional
development.development.

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About the AuthorAbout the Author


He has been coordinating with various Professional He has been coordinating with various Professional
Institutions, Associations, Universities, University Grants Institutions, Associations, Universities, University Grants
Commission and other Educational Institutions.Commission and other Educational Institutions.

Authored more than 50 books on a vast range of Authored more than 50 books on a vast range of
topics including Internal Audit, Bank Audit, SEZ, topics including Internal Audit, Bank Audit, SEZ,
CARO, PMLA, Anti-dumping, Income Tax Search, CARO, PMLA, Anti-dumping, Income Tax Search,
Survey and Seizure, IFRS, LLP, Labour Laws, Real Survey and Seizure, IFRS, LLP, Labour Laws, Real
estate, ERM, Inbound and Outbound Investments, estate, ERM, Inbound and Outbound Investments,
Green Audit etc.Green Audit etc.

The author can be reached at The author can be reached at [email protected]@gmail.com. For . For
more details log on to more details log on to www.caaa.inwww.caaa.in

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