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CA NEERAJ KUMAR AGARWAL
Inventory and fixed assets are important components of a business’s assets and they play a crucial role in the success of a business. Significances of inventory and fixed assets in a business can be understood from following points:
Revenue generation: Inventory is an essential component of a business that directly affects revenue generation. Having the right amount of inventory on hand ensures that the business can meet customer demand and generate sales. Fixed assets, such as equipment and machinery, are also critical to revenue generation as they enable the business to produce goods or deliver services efficiently.
Investment: Inventory and fixed assets are significant investments for a business. Managing these assets efficiently can help a business to maximize its return on investment and achieve long-term financial success.
Risk management: Inventory and fixed assets represent significant risks for a business. Poor inventory management can result in overstocking or understocking, which can lead to lost sales or increased carrying costs. Mismanagement of fixed assets can result in costly breakdowns, repair costs, and disruptions to operations.
Financial reporting: Inventory and fixed assets are important components of a business’s financial statements. Properly accounting for these assets is critical to maintaining accurate financial records and complying with accounting standards.
Taxation: Inventory and fixed assets also have significant tax implications for a business. Properly managing these assets can help a business reduce its tax liability and comply with tax laws and regulations.
Inventory and fixed assets audits are two types of audits that can be conducted by a business to ensure that the inventory and fixed assets are accurately accounted for and are being managed effectively.
Here are some key aspects of each audit
An inventory audit or stock audit is an examination of a company’s physical inventory and the accuracy of the inventory records. The purpose of an inventory audit is to ensure that the inventory is properly accounted for and that the value of the inventory is accurate. Inventory audit assist in prevention of pilferage and fraud, identifies the direct impact on costs and bottom line, enable accurate valuation of inventory, and provides third party independent opinion, especially for agent warehouses. For some statutory purposes, stock audit is required to be undertaken at least once in a financial year. An inventory audit involves the following steps:
Physical counting of inventory: The auditor conducts a physical count of the inventory to ensure that the recorded quantity matches the actual quantity.
Review of inventory records: The auditor reviews the inventory records to ensure that they are accurate and complete.
Evaluation of inventory valuation: The auditor evaluates the methods used to value the inventory to ensure that they are consistent with generally accepted accounting principles (GAAP).
Identification of slow-moving or obsolete inventory: The auditor identifies any inventory items that are slow-moving or obsolete and recommends appropriate actions to reduce the carrying cost of such inventory.
Fixed Assets Audit:
Verification of asset existence: The auditor verifies the existence of the fixed assets by conducting physical inspections of the assets.
Review of asset records: The auditor reviews the asset records to ensure that they are accurate and complete.
Evaluation of asset valuation: The auditor evaluates the methods used to value the fixed assets to ensure that they are consistent with GAAP.
Identification of unrecorded or missing assets: The auditor identifies any fixed assets that are unrecorded or missing and recommends appropriate actions to record or recover such assets.
How Can MNRS Help?
By conducting an inventory and fixed assets audit, a business can ensure that its inventory and fixed assets are properly accounted for, valued accurately, and managed efficiently, which can help the business reduce costs and improve profitability. The process mainly takes into consideration of physical stock and physical assets presenting in the specified premises and demonstrate the same with computed stock maintained by the company. The main ground behind executing this is to correct the discrepancies present in the book stock when compared to physical stock.
We offer reliable and cost-effective stock audit services to companies and organizations with a dedication and aim to help them safeguard and monitor their physical assets and inventories all across India. We can perform inventory and fixed assets audit: –
- To identify the discrepancy between book stocks and physical stock
- To ensure proper preservation and handling of stocks and fixed assets
- To identify misappropriation of inventory and fixed assets
- To identify slow moving, non-moving inventories
- To identify fixed assets which need to be discarded in compliance with applicable accounting and auditing standards
- Asset code tagging for easy identification and tracking