1. Summary
  2. Stock audit
  3. Objectives of stock audit
  4. Steps Involved In Stock Audit
  5. Required documents
  6. Format for stock Audit


Working capital finance within the style of money credit against the protection of hypothecation of stock and debtors is one of the foremost common modes of finance often adopted by varied bankers. The borrowers in such cases are expected to submit the small print of stock and debtors monthly on the premise of that attractiveness once reducing the prescribed margin is calculated by the banks. Stock and debtors being the first security, bankers for ascertaining the genuineness & correctness of such statements appoint controller companies at frequent time intervals to conduct stock audits specifically wherever the exposure exceeds the planned threshold limit.

Stock audit

Inspection of quality charged to the investor at an everyday interval is a vital and desired activity of banks for watching and guaranteeing the finished use of funds. Besides effecting unit examination, banks study the borrower’s books of accounts, conducting significant scrutiny of quarterly progress reports and additionally the no-lien accounts maintained with alternative banks at regular intervals. Any each bank features a ‘stock audit policy’ below that all its branches shall organize a “stock audit” of the accounts that are enjoying capital facilities on the far side sure limits. This can be added to routine stock examination dole out by the involved branch.

Objectives of Stock Audit

The banker appointing the CA firm for conducting stock audit has the main objective of ascertaining whether or not the protection (borrower’s stock) against that finance has been being safe and is valued properly. The varied functions expected to be achieved through a stock audit is also summarized as follows:-

  • To guarantee correct preservation/ storage and handling of stock.
  • To determine whether or not there exist any obsolete stock, if yes, whether or not it’s been isolated & written off.
  • To verify whether or not the stock is satisfactorily insured against the fireplace and alternative natural calamities (in applicable cases against alternative risks like stealing, burglary, marine, riots, etc. As per sanction).
  • To guarantee correct preservation/storage and handling of stock.          
  • To determine whether or not there exist any obsolete stock & if affirmative, whether or not it’s been isolated & written off.
  • To verify whether or not the stock is satisfactorily insured against the fireplace and alternative natural calamities. 
  • To ascertain whether or not physical stock tally with the stock statement submitted to the banker     
  • To ascertain whether or not hypothecated stock is realizable.
  • To ensure that stock is in hand by the receiver and finance is formed against the price of paid stock solely.     
  • To examine the age-wise debtors outstanding as per books and as per statement submitted by the bank, steps taken for recovery of long unfinished debtors, and sure instances of debtors turning unhealthy, if any.   

Steps Involved In Stock Audit

The stock audit is essentially needed to be conducted at the borrower’s place for obvious reasons. However, before visiting the receiver, understanding the entity, its banking operations, and monetary affairs are should. Therefore, it’s advisable to go to the various branch wherever the receiver has the account thus on gathering the data about Sanction, account operations, nature of business, the performance of the receiver, and alternative basic data in conjunction with the comments/ observation noted by alternative auditors (like internal inspectors, coincidental auditors, etc) to possess a short understanding regarding the receiver and its monetary affairs.

Required documents

Documents needed from bank branch officers

  • Sanction letter & latest renewal letter.
  • Stock statement (last half-dozen months)
  • Statement for the last half-dozen months.
  • A turnover report last yet as current F.Y.
  • Just in case of Co., Copy of type CHG eight.
  • Balance o/s altogether A/Cs with the bank.
  • Displaced person register.
  • QMR/ QMS/ QIS/ QPR for the last two quarters.
  • Branch examination report.
  • Valuation report for collateral securities.
  • Yearly/ quarterly book debt CA certified book debt statement.
  • If the most important dealing with the same party reflects in a/c statement, then relation with such party & genuineness of such dealing ought to be verified.

Format for stock Audit

Format for stock audit report might vary from bank to bank. Some banks have made-to-order stock audit report formats whereas others might hint solely at the necessary areas to be reportable by stock auditors. Regardless of the formats, it’s smart to possess form to be ready by stock auditor covering following necessary areas of stock audit

  • Compliance with terms and conditions of sanction.
  • Timely & adequate submission of stock statements & alternative necessary monetary data.         
  • Account operations – overdrawing, credit summation, and money withdrawals.
  • Drawing power calculations by banks and by the auditors & discrepancies, if any in conjunction with the explanations.
  • Physical maintenance and storage of stock and adequacy of facilities at the borrower’s place.
  • Systems/procedures enforced by the receiver to spot the slow and non-moving stock things.
  • Borrower’s Management data system, its adequacy & Internal controls to safeguard stock.
  • Method of valuation of stock, the quantity for valuation, and adequacy & sufficiency of procedures therefrom.  
  • Insurance of stock.    
  • Verification of Debtors.

About the Author

BankReed Admin

Banking Professional with 16 Years of Experience. The idea to start this Blogging Site is to Create Awareness about the Banking and Financial Services.

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