Audits are performed to ascertain the validity and reliability of relevant information and can be applied widely across the organisation. There are two distinct inventory auditing processes.
The first is tracing a single item from the start of its life to the end. Potentially for manufacturing businesses, this could be a production item, for retail businesses this will be a final sale to the customer.
The second is a complete audit, which involves the comparison of a company’s books or system stock versus the actual physical stock in the warehouse. This is done on an annual, monthly, periodic or daily basis (through the use of perpetual inventory techniques).
The need to audit inventory is driven by the need to ensure that the cash tied up in the stock is controlled and managed.
A key element to be mindful of is theft and the risk of theft of high-value items within businesses. Inventory auditing and counting is a high-profile deterrent, as each product is controlled/recorded and taken account of.
