Which Method is Best for Verifying Inventory?

Any kind of audit is time-consuming, and manual work is required. But they can dive deeper into a company’s financial position and accounts.

E-commerce businesses might audit their inventory when selling goods. This could be done for tax purposes each year or to verify the units in stock.

You can either have an inventory audit done in-house or by third parties. They are a snapshot of one point in time. Let’s get into the auditing methods by inventory verification company in Dubai of one of your most valuable assets, your inventory.

What is an Inventory Audit?

An inventory audit involves cross-checking a business’s financial records with its inventory records. It is an important part of the inventory management process. It helps confirm that financial records are accurate and uncovers any discrepancies. These audits can also be used to help inventory forecasting.

Importance Of Auditing Inventory

The observation of inventory is an accepted auditing procedure. An independent auditor gives an opinion as to whether financial records of inventory accurately reflect the physical inventory being held.

Auditing inventory is crucial to gathering evidence, especially if you are involved in manufacturing or retail-based businesses. It can be a large amount of capital or assets.

To verify the value of an inventory, it is necessary to audit its quantity and condition.

Conducting an Inventory Audit

For an inventory audit to be successful, you need accurate and current data from multiple sources. This data could include inventory counts, backorders, sales records, shipping manifests or any other records. This is critical to ensure audits are accurate and complete.

There are many ways to audit inventory, but the overall process is the same. Two records must be obtained that must reflect the same inventory number. You can then compare them to see if they are compatible. If they don’t match, mark the problem areas and investigate any issues such as missing inventory, damaged products, or incorrect sales figures.

Many other smaller procedures can be part of the inventory audit workflow.

Common inventory audit procedures

When auditing your inventory, it is important to choose the right method for your purpose and for who the audit is being performed. Here are some common methods and analyses used for inventory audits.

Inventory count

Like physical counting, cycle count involves manually counting a certain number of products and then comparing them to your system. But cycle counts can be done on a limited number of products. This allows you to frequently audit the most valuable products and frequently prevent inventory shrinkage.

ABC analysis

This is when you group items that have different values and volumes together. These items can even be stored in this manner, which can help an auditor pay more attention to the most valuable inventory items ).

Reconciling items

It is worth conducting a reconciliation items investigation to determine the root cause of discrepancies discovered in an inventory audit. You will want to identify error-prone SKUs and monitor them for future opportunities.

Analytical procedures

Analytical procedures involve analyzing inventory using financial metrics, such as historical gross margins and inventory days on hand, inventory turnover ratio, and inventory costs.

Shipping invoice matching

Auditors often conduct this inventory audit randomly. It involves comparing the cost to ship inventory with the number shipped. It confirms that products have yet to be shipped for an incorrect amount.

Finished goods cost analysis

This is great if you make your products. It shows when the product is ready to sell so that an auditor can instantly value the inventory for the current accounting period. Auditors may use this inventory to validate financial statements. You can learn more about finished goods inventories here.

Analytical procedures

You can compare your inventory turnover rate using the gross margins or unit costs and the data from the previous years. This will allow you to detect any sudden changes or volatility.

Cutoff analysis

When you stop receiving or shipping at the time that the physical count is complete, it is to make sure nothing goes unaccounted.

Overhead analysis

The overhead analysis involves analyzing indirect costs to the business and overhead costs that could be included in inventory costs. In certain cases, inventory costs can include rent, utilities and other costs.

Conclusion

Inventory audits are important to keep inventory accurate, detect shrinkage and ensure sufficient stock. inventory verification assistance in Dubai can be a great option for inventory management and fulfillment. They will take the necessary measures to protect your inventory without you having any time-consuming work.