What do you mean by Stock Auditing?

Auditing is the process through which the auditor who is appointed as per the rules and regulations mentioned in the companies act 2013 examines the financial statements of a company in order to determine whether the financial statements prepared by the companies present a true and fair view about the affairs of the company.

The task of an auditor is to work as a watchdog and not as a bloodhound that is the auditor will check the statements and if during that examination, he/she comes across any fraud or misrepresentation carried on by the management of the company then he shall mention that in the audit report which he prepares. Unlike a bloodhound, the auditor is not expected to perform the audit with a prior assumption that the management must have committed a fraud.

There are various types of auditing like the management auditing involving the examination of the decisions of the management or the cost audit which involves the examination of the accuracy of the cost accounts which are prepared by the company.

In this article, we shall talk about the latest trend in auditing known as stock auditing. Just as the name suggests, stock audit is concerned by the physical verification of the physical stock maintained in the store house of the company. In short the auditor carries out an inspection of the physical stock and matches the results with the stock registers maintained by the company. The main aim is to determine whether the management is presenting a true and fair view about the affairs of the company.

The stock audit is conducted so that it can be verified whether the management has prepared the stock registers as per the standard accounting rules and regulations and that the management is not showing understocking or overstocking for affecting the profits. Because the management will not have to pay taxes if it manipulates the financial statement by showing overstock and in turn show losses and hence won’t have to pay taxes to the government.

The auditor after carrying out the inspection and examination by using reasonable skills, duty and care presents his opinion in the form of the audit report which is signed by the auditor and presented before the shareholders in the annual general meeting.

The auditor during his course of inspection can question the employees or demand to check and examine the other books of accounts prepared by the management. If the management refuse to cooperate with the auditor or the employees refuse to give any information, then the auditor shall specify that even after requesting the information he was denied the access to the information in his audit report.

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