Stock Audit for Banks involves the physical verification and valuation of inventories offered by borrowers as security against working capital facilities. The objective is to confirm the existence, ownership, quantity and value of the stock and to assess the adequacy of the security cover.
Scope of Stock Audit
The engagement covers:
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Physical verification of inventories at the borrower’s premises
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Reconciliation of physical stock with the borrower’s records and statements submitted to the bank
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Assessment of valuation methods and realisable value
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Review of stock movement, ageing and condition
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Verification of hypothecation and related documentation
Process
A structured approach is followed:
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Review of bank sanction terms and stock statements
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On-site physical verification and test counts
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Analysis of discrepancies and non-moving stock
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Assessment of drawing power and security coverage
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Preparation of the stock audit report for the bank
Outcomes
The report assists the bank in monitoring the quality of security, determining drawing power and taking informed decisions on the continuation or modification of facilities.