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In this article author has tried to throw some light on the procedure to be followed while
conducting stock and receivable audit in a brief manner:
Working capital finance in the form of cash credit against the security of hypothecation of stock
and debtors is one of the most common method of finance frequently adopted by various
bankers. The borrowers in such cases are expected to submit the details of stock available,
Balance of debtors and Creditors (Also known as unpaid stock) every month on the basis of
which Drawing Power after reducing the prescribed margin as mentioned in sanction letter is
calculated by the banks. Stock and debtors being the primary security, bankers for ascertaining
the genuineness & correctness of such statements appoint empanelled chartered accountant
firms to conduct stock audit specifically where the exposure (credit facilities) exceeds the
predetermined threshold limit (generally over INR 5 Crores). This threshold limit can be different
for every bank.
We as an auditor before starting audit should obtain the below mentioned documents:
We as an auditor should consider the following points while conducting the Audit:
Appraisal Note
Sanction letter
Whether stock register is maintained properly like quantity, rate and values are mentioned properly.
Insurance of stock and bank clause on policy cover note. Also, policy cover not is available on record and all risks are covered
in the policy.
Whether Drawing power calculation is correct (As per sanction letter) and DP register is updated regularly
Letter of intent
Whether stock and book debt statement has been submitted on time (as per sanction letter)
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List of debtor & creditor (direct confirmation as per SA:505)
Margin requirement as per sanction letter (25%, 40% as the case may be)
Challans paid of various statutory dues (ESIC, PF, Property Tax, GST, Any other Cess)
Total exposure i.e. Oher facilities availed by the client from bank
Procedure and Physical verification of inventory by management as per para 3 of Companies Auditor’s Report Order, 2020
(CARO 2020)
Disclaimer: The information provided by the author in the article is for general informational purposes only. All information provided is in the
good faith, however we make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity,
reliability, availability or completeness of any information in the article.
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CA Ramanujan Sharma is a seasoned Practicing Chartered Accountant and the Managing Partner of M/s NKRS & Co. With extensive experience in
Management Consultancy, Auditing, Taxation, and Finance, including specialized skills in MIS and Cost Sheet analysis, he has established himself as a
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4 Comments
P K MISHRA says:
Thank You so Much CA RAMANUJAN for Sharing Knowledge about STOCK AUDIT.
consider.html/#comment-122312099)
consider.html/#comment-122313284)
P ARAVINDHAN says:
Collateral is not very relevant in stock audit. Comments on the quality operations in the OCC account, reconciling the operations with GST returns
of borrower and also reconciling the operations with the Financial Statements , is more important
consider.html/#comment-122311081)
Thanks for your valuation suggestion. But the collateral is important when account is NPA.
consider.html/#comment-122311350)
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