PHYSICAL STOCK VERIFICATION

The process of auditing is done through a set of rules and regulations as per the companies’ act 2013. It examines the financial statement of a company to determine the prepared statements to be true and fair in terms of company affairs.

Similarly, a stock audit is a process that refers to physical verification of the inventory which includes evaluation of inventory items based on the reference of the assignment.

The stock audit process is necessary to reduce the avoidable investment on stocks or inventory to ensure proper balance in the process. As high levels of stock result in overstocking which may result in the poor value of cash flows and financial losses.

The main reasons for executing the audit are to correct the discrepancies that are present in the stock record when verified with the physical stock bypassing necessary adjustment entries. Following are the reasons why it is looking forward to performing a stock audit:

          * To update the starting stock details.
          * To identify the discrepancy between stock records also known as computed stock and physical stock.
          * To update actual physical stock as a stock record.
          * To ensure proper handling of stocks. 

Two methods are used for physical verification of stock:

1. Annual Physical Verification

2. Perpetual Inventory Control.

Method 1. Annual Physical Verification:
In this an independent person of a high rank known as verifying officer checks the stock lying in store once in a year, so as to see that the quantities as shown in store-ledger, bin cards and actually available in bins tally each other. After verification, verifying officer submits a list of shortages, excess and comments about damaged, surplus, obsolete and unserviceable stores.

In this method checking is started from one part of the store-room and make the round of all the stores, checking all the items in a certain number of bins each day and comparing them with the balance shown on the bin cards and in the stores ledger. In the larger companies one or two men or as many as may be required by the particular business may be engaged continuously in counting materials on hand.

In this method at the end of the year, the store is closed and in a few days complete checking is done. The advantage of this method is that a thorough check of all the items is performed at a time and all the discrepancies are known collectively.

Method 2. Perpetual Inventory Control:
This is a perpetual or continuous check throughout the year in such a way that each item is checked at least once. In this system, the material is checked as it reaches to its minimum level.

This can be performed by the store-keeper or some­body else specially engaged for this task as he notices, that the balance on the bin card has reached the minimum. Special provision is made for checking items which have not reached their minimum during a period.

The advantage of this method is that the store not to be shut down for some time. Only minimum quantities are counted, weighed etc., therefore, less labour and time is taken. This method is comparatively more accurate.

This method is very suitable for large firms having huge quantities of different materials. If annual physical verification is done in such plants, complete shut-down of the stores may pro­duce large losses to the owner.

Therefore, for small plants which takes hardly few days for complete checking, “Annual Physical Verification” is done. In such plants necessity of shutting down the plant also does not arise, as daily issues and receipts are not much.