The inventory level of the bank is calculated through the stock audit. The current asset is the sum of the inventory and debtors. Current assets have the nature of long term calculation and change only within one year. The stock movement is essential as it leads to less cash flow and less profit. The stock auditor must have three years of experience in auditing. He has to be a chartered accountant, cost accountant or a person running an auditing firm. He must be a person with an income tax assessment. He should be a citizen of India. The blog about stock audits enthrals the readers with interesting information about the process of stock audit, findings of the stock audit, and current opportunities in the field of stock auditing. Stock auditors get an average salary of 2.4 lakh per annum in India. The job helps to learn the bank operations and manufacturing company operations.
The goal of the stock audit is to ensure the following valid points: storage of stock, the process of stock, check whether the obsolete stock is written off, verification of the insurance, check the book count and physical count are the same as bank records, the realization of the hypothecated stock, debtor outstanding, bad debts and efforts made to recover bad debts as per the statement and the books, ownership of the stock. The social audit must follow the following points: the compliance with terms and conditions, timely submission of financial information, the operations like cash withdrawals, overdrawing, credit summation, drawing power allowed by the banks, the facilities for the physical maintenance, the method of calculation of slow-moving assets by the borrower, MIS of the borrower, the method of the stock valuation, debtors verification, and insurance of stock.
Process of stock audit:
The zonal office or the regional office of the banks conducts the stock auditing. The period is one time or two times. The past data and the book values are necessary to understand the business process and reliability. The three levels of the stock audit are checking the data, visiting the place, and analysing the data and relevant information. The three processes are explained below:
• Banks maintain the documents submitted by the borrower in a folder. The other folder consists of the monthly stock statement, project report, application form, audited financial statement, sanction letter, and previous report of the stock audit. Analysing the DP register and account operations help the borrower to understand the affair of the borrower with the bank. The conduct of the borrower plays a vital role in the succeeding process.
• The bank checks the documents with a physical check during the visit. The auditor digs deep into the system with the questionnaire prepared by the auditor. The stock movement and cash flow are understood with the following checks: Stock insurance policy, debtor details, MIS report, daily stock statement, trial balance and provisional balance sheet as on date, audited financial report, invoice receipt of sales and purchases, the method used for calculating the closing stock and stock register.
• The future actions and adverse findings are mentioned in the auditor report. The audit report is as per the bank’s prescribed format. If there is no format, the questionnaire is explained with an explanation as of the report. The findings are discussed with the bank authorities and borrowers.
Findings of stock audit:
The stock audit alert the borrower about safety and future NPA. The weakness of the system help for taking timely action and enhances the credit value. The bank calculates the credit value of the borrower. During loan sanctions, the banks cross-check the credit values. The securities are checked with physical verification, valuation, and storage system and ownership details. Loose tools, spare parts, stores, maintenance supplies, raw materials, work in progress, waste or by-products and finished goods are the different terms for inventories. The contractual obligation of the business is expressed as the debtor value. It is the sum of the loans and advances. The auditor should have an experience in the business of the client. He has to communicate with the auditee to manage the communication gap. The stock auditor calculates the drawing power with the following crucial points: margin requirements, arithmetical accuracy, old inventory details excluded, debtors greater than 90 days not taken for the calculation, the unpaid stock not taken for the calculation, a statement as per the bank format, inventory statement, sister concern debtors are not taken for the calculation, the outstanding older than three months is taken as irregular, and if there is irregular drawing for ninety days the account is mentioned as NPA. The financial position and the drawing power have different meanings. In some companies, the financial position is good, but the drawing power is NPA because of the irregularity.
Current vacancy of stock auditors:
The Jammu and Kashmir bank announced for empanelment of a stock auditor from 2021 to 2022. The notification for the stock auditor is out on June 2021 at union bank of India. State bank of India, PNB, BOB, and Indian bank also show vacancies for stock auditors.
Bottom Line:
Stocks face uncertainties and a regulatory crackdown. It is essential to measure stock with stock auditors. The shortage of stock and overstocking educate about inventory management. Control over the wastage of raw materials and balance over the cash flow lead to high profits. The stock auditing findings help in understanding the risk of loss due to security issues and explain the true picture of the business. A business that operates in multiple locations represents the wrong data. Stock audits help for bringing accuracy to the business plans and operations.