AUDIT PROGRAMME FOR STOCK TAKING

EXERCISE

FOR

XYZ LIMITED
1.0 INTRODUCTION

Following the mandate given to …………………….. to carry out a supervisory role in

the Stock Take Exercise scheduled to commence on the …. day of ……, 2011 in the
premises of XYZ Limited. We hereby present our detailed observations in respect of the
aforementioned for your attention and further directives (if any).

This program is to serve as a guide for the Stock Take Exercise. Its main objective is to
provide the steps by steps approach and/or procedures to be adopted in carrying out the
exercise.

Accordingly, our representatives namely, …………………and ………………… will

only be in the respective warehouses of the company to witness the effectiveness of the
stock take and procedures as the responsibilities of the core stock counting and recording
are that of the company.

2.0 OBJECTIVE OF THE ASSIGNMENT

The core objective of this assignment is to supervise the Stock Take Exercise by
observing the effectiveness and strict adherence to the recommended/Statutory stock
taking procedures which includes among others:

 To ensure all inventory items are counted

 To ensure accurate valuation of stock item
 To ensure inventory areas are properly arranged
 Checking stock taking count sheet to ensure it is well paged and footed
 To ensure there is no movement of stock items once the physical count begins
etc.

3.0 ADVANCE PREPARATION BY THE AUDITORS:

 Obtain a complete list of inventory locations and aggregate amounts at each

location.

 Obtain a draft of the physical inventory instructions sufficiently in advance of the

inventory date to discuss with the Organization any necessary revisions. Review
proposed inventory-taking procedures and count instructions. Discuss with XYZ
any potential problem areas or apparent weakness.
  Tour warehouse areas in advance of physical inventory to assess stock layout and
areas that may require special attention during the physical inventory.

 Obtain a list of:

o departments or areas
o names of departmental heads
o number (sequence) of tags or count sheets issued to each department
o latest available inventory amounts in each department.

 Determine the number of test counts to be made and recorded by the auditors for
each department and area, giving consideration to the client’s inventory
procedures and control over inventory taking.

 familiarize staff with any carry forward data and special problems

4.0 OBSERVATION OF THE PROCEDURES; TEAM MEMBERS TO:

 Observe count teams in action, noting adherence to instructions, care in

making counts and care over accurate and complete recording of descriptions.
 Note that count teams systematically cover assigned areas to ensure complete
coverage, without overlapping areas that are the responsibility of others

 Observe that all inventory in areas adjoining the primary storage areas, have
been properly included in or excluded form the inventory count.
 Ascertain that count teams deal with physical movements in a manner that will
avoid duplicate counts or exclusion from the count.

 Determine that the serial number, description and last operation number
selected for count are correct by referring to part numbers stamped on the
material or requesting identification by client personnel.
 Ensure that the count teams open some sealed cartons or containers to
determine the quantity and type of contents (i.e. identify, model number,
physical characteristic, etc) and agree these to the description on carton or
container.

 Ensure that count teams watch for empty boxes, spaces in the middle of stock
piles, etc.
 When appropriate, ascertain that the client compares counts with perpetual
records and investigates immediately any large differences.
  Observe that count teams are noting seemingly excessive, slow-moving or
damaged inventory for later review.
 Ascertain that consigned inventory or previously scrapped materials are omitted
form the physical inventory taken by the count teams.

5.0 TESTING BY AUDITOR:

 Select and count certain pallet, bins, piles or stacks of material and compare
the count with the client’s count, description, last operation and other date on
completed tags.

 Record sufficient detail to enable exact matching with inventory summaries at a

later date.

 Test count with the client’s count teams and make sight test comparisons of
other pallets, bins etc. of the same or similar products.
 To the extent that previously referred to procedures or other required
procedures are not carried out effectively by Auditor’s count teams, perform or
re-perform the procedure.

 Select several groups of tags issued and inspect the tags and document the
following in the working papers:
o The time and day the tags were authorized to be pulled
o The serial numbers of large blocks of unused tags or count sheets for
later testing of the inventory summarization to ensure that the remained
unused as a test for false inclusion.

 Select and record (for later comparison with the final tabulation) a consecutive
number of originally issued tags or count sheets and account for all serial
numbers, ascertaining that the client has properly recorded them as used,
unused or voided.

 As a precaution against improper (“false”) inclusion of tags or lines on count

sheets, select several of the “used” tags or count sheets after the client’s
summary of tags is complete and locate and count the corresponding material.
6.0 PHYSICAL STOCK TAKING INSTRUCTION

The management of XYZ Limited shall implement the stock take procedures that all
inventories are counted, valued and properly recorded in the Stock Taking Sheets. This
will be used for posting into the financial records of Accounting System of the company.

The following general instructions should be followed in taking physical inventories:

a. Areas where inventory shall be counted should be arranged, prior to the stock
taking date, in such manner as to expedite the physical count and ensure
accuracy.\

Count sheets with a description of inventory items, stock number, unit cost etc
will be provided by the Finance Department prior to the stock taking date for
the use by the supervisor of each unit.

b. All inventory items must be counted. It is recommended that items of high unit
value be recounted or checked, preferably by a separate individual, to ascertain
that a proper count has been made.

c. Variances in the value of inventory counted versus the Bin Card/Book Value of
the inventory shall be recorded and management should seek explanation for
the variances to avoid a repeat occurrence in future.

d. SLOW MOVING/OBSELETE/EXPIRED/DAMAGED STOCKS.

Slow moving/Obsolete/Expired/Damaged Stocks should be segregated and

counted separately.

Please provide a complete description of such items and indicate whether slow
moving or obsolete or expired or damaged.

The cost of obsolete or damaged stock should be stated separately and not added
up with the costs of goods stocks.

Some examples of obsolete stocks are items which have passed their expiration
date, item such as Spare Parts that have been superseded by a new version and
parts for equipment that is no longer used.
 e. Items leased or on loan from third parties should be listed on a separate count
sheet and marked as such with value. Be certain not to list items as stocks of XYZ
Limited to avoid overstatement of stocks.

f. All departmental heads should informed of the date of the stock taking exercise in
advance. All activities be it production or sales shall be suspended during stock
taking so that all departments may anticipate and provide for their needs for this
time period in advance.

Once the physical count begins, there should be no movement of raw materials,
packaging materials, finished goods, production or sales until the count of all
items has been completed and approved by the Unit Supervisor and Chief
Operating Officer. The only exemption to this shall be emergency requisitions by
the COO.

g. Spare Parts/Stock received prior to 1st January, 2012, but after the physical count
begins shall be segregated and not commingled with other inventory.

After completion of count, these stock items should be opened, inspected, counted
and included in the physical inventory count sheet.

h. Cash receipts for sales made during through 31 st December, 2011 must be
deposited by 1st January, 2012.

Journal Vouchers and sales invoices for all issues and/or sales made prior to the
close of stock taking should be prepared, dated and processed prior to the end of
the stock taking exercise by the Finance Department.

i. Stock taking count sheets should be paged, footed, extended, totaled and checked
for accuracy. These count sheets should be submitted to the Finance Department
before the close of business on the same stock count day, who in turn-in-turn with
hand them over to FDO Personnel that same day.

j. Stocks should be valued at lower of cost or net realizable value (not at selling
price) please.

It is the responsibility of the Unit Supervisors in charge of physical stock taking at each location
to explain/brief the stock takers about the instructions relating to counting and checking
techniques to be applied and to assign qualified personnel to take the physical stock count.
It is advisable that a pre-stock meeting takes place in the company premises acquaint all the
personnel with guidelines and instructions to ensure a smooth exercise.

The above are not exhaustive but meets the acceptable international standard procedures for
accounting and auditing practices.