5 stock taking audit steps for a retail business

As an auditor, you will be required to carry out a stock taking audit for retail business. Therefore, the above list of steps can guide you in performing this task in a seamless manner. And help you achieve your goal in the audit. The five steps are explained in the second sub heading.

What's stock taking?

Stock taking, also referred to as stock count is the process of counting each item of stock in a business shelf. Retail entities such as supermarkets do stock several items on their shelves. Therefore, at a regular interval the items are counted to ensure that what's in the shelf equals what's in the books of accounts. This is usually done at the end of the month. And it is used to calculate the retailer’s closing inventory.

A retail company may have an internal auditor that is present when the stock taking is done. Also, for at least twice a year, the external auditor may require to take a physical count of all the inventory on the shelf. Carrying out stock taking audits is more than mere physical counting of items in the inventory. Below are steps that can be utilized when doing so.

Five (5) steps in carrying out a stock taking audit

1. Carryout background knowledge

The first step is to prepare for the audit. This is done by carrying out background knowledge of the retail company. You should request an operational procedure for their inventory. The entity should have a standard of operating the items on the shelf. Such as, when a stock count is done, minimum stock to order new items, among others. Also, you should request for bin cards, receipt notes for inventories, and other evidence required to prepare for the audit.

2. Prepare a checklist

The checklist will contain areas you want to examine during the stock takings. While taking stock, you need to know if the staff follows the company's policies as they contain the operational procedures. Included in the checklist are the tagging system for each item and category, physical count figures, questions to ask the responsible staff, stock valuation method and if it is followed strictly, and more.

3. Physical count

Now, it's time to proceed to the actual counting. Here you have to make sure that each item is counted. Do not estimate the count, but check properly. Because, employees can be funny! After counting, check if the physical count corresponds with what's in the books. If there is variance, ask questions and resolve them. Do not assume a fraud has occurred when it might be an error from you or from the entity's employees. Make necessary reconciliation to balance the physical count and what's recorded.

4. Write your report

Next, you will write a report with regards to the stock takings. The report will include the date the stock count was done. The amount of stock in the shelf and warehouse, the amount of stock items in the books of account, any procedure requiring adjustment, areas where the employees are not complying with policies, and so on.

5. Document

Finally, ensure you document every aspect of the process including your checklist, physical count sheet, stock count report, and any other documents involved. This is important for future reference. And may serve as evidence for the exercise.