Stock-Taking Guidelines
Accurate stock-taking is a critical element of sound financial reporting and effective audit assurance. Well-designed and consistently applied inventory count procedures provide the foundation for reliable inventory records, robust internal controls, and compliance with applicable financial reporting frameworks and International Standards on Auditing.
This guidance outlines the key principles and practical requirements governing stock-taking processes, clearly distinguishing between management’s responsibilities and the role of audit reviewers. It is intended to support disciplined execution, transparent documentation, and the generation of sufficient and appropriate audit evidence in accordance with Crowe AHFAD’s professional standards and Crowe Global quality policies.
Instructions for Management (Clients)
Management is responsible for designing, implementing, and executing the stock-taking process. The primary objective is to ensure that inventory quantities are complete, accurate, and properly recorded.
Before the Stock-Take
Management should:
- Establish written stock-taking procedures and communicate them to all relevant personnel.
- Assign competent staff and ensure appropriate segregation of duties.
- Identify all inventory locations, including third-party warehouses and consignment stock.
- Define clear cut-off procedures for goods received and dispatched around the count date.
- Prepare sequentially controlled count sheets or approved electronic counting tools.
- Ensure inventory records are up to date prior to the count.
All unnecessary inventory movements should be minimized or suspended during the count.
During the Stock-Take
Management should ensure that:
- Inventory is counted systematically and consistently across all locations.
- Counts are performed independently and verified where required.
- Items are clearly identified, labeled, and not double-counted or omitted.
- Damaged, obsolete, or slow-moving inventory is separately identified.
- Any differences or uncertainties are clearly noted and investigated.
Count documentation must be completed accurately, signed, and retained.
After the Stock-Take
Management is responsible for:
- Reconciling physical counts to inventory records and the general ledger.
- Investigating and resolving discrepancies on a timely basis.
- Recording approved adjustments in the accounting records.
- Assessing inventory valuation, including obsolescence and net realizable value considerations.
- Retaining all supporting documentation as part of the financial reporting audit trail.
Instructions for Audit Reviewers (Observers)
Audit reviewers observe the stock-take to obtain sufficient and appropriate audit evidence regarding the existence, completeness, and condition of inventory. Observation does not replace management’s responsibility for the count.
Planning the Observation
Reviewers should:
- Assess inventory-related risks and determine the scope of observation.
- Understand management’s stock-taking instructions and procedures.
- Identify high-risk areas, significant locations, and material inventory categories.
- Plan attendance at relevant stock-take locations where inventory is material.
During the Observation
Reviewers should:
- Evaluate whether stock-taking procedures are properly followed.
- Observe controls over inventory movements and cut-off.
- Perform test counts and compare results to management’s records.
- Inspect inventory condition and identify potential valuation issues.
- Note any weaknesses, deviations, or unusual matters during the count.
All observations and test results should be documented clearly and objectively.
After the Observation
Reviewers should:
- Assess whether the stock-taking results provide reliable audit evidence.
- Review reconciliations between physical counts and accounting records.
- Follow up on discrepancies, unresolved items, and valuation concerns.
- Evaluate whether inventory is fairly stated in accordance with the applicable financial reporting framework.
- Communicate identified control weaknesses or process deficiencies to management.
Professional Standards and Quality Commitment
Crowe AHFAD’s approach to stock-taking is aligned with:
- International Standards on Auditing (including ISA 501)
- Crowe Global audit methodology and quality policies
- International financial reporting and inventory valuation principles
By clearly defining responsibilities and applying consistent procedures, we support robust audit conclusions, strong internal controls, and confidence in financial reporting.