An inventory audit is a process of assessing the methods that a company uses to record its inventory by using various analytical procedures. This is to ensure that the company has recorded its inventories properly in its books of accounts. Also, it makes sure that the records are the same as the physical count of inventory the auditors have performed.

In manufacturing companies, inventory audits play a crucial role as they will buy raw materials and convert them into finished goods. If these companies have been doing inventory audits properly, they will be able to maintain healthy practices in their operations which are associated with inventories.

Advantages

1. When the auditors from an audit firm Johor Bahru are conducting an inventory audit, they will use various analytical procedures to assess the methods the company is using to record its inventories. Hence, this ensures that the company’s records about its inventories are accurate.

2. The company will be able to find out the key reasons for the reduction of its inventories if that happens. Then, the company can take corrective and preventive actions to avoid such situations from occurring again in the future.

3. No matter what kind of business the company is involved in, an inventory audit (Also see What LHDN Audit Procedures a Business May Experience?) can help the business owners to make sure that they have the correct amount of stock at the right time. This is because if the company owns more stocks than it needs, this may result in a loss in the opportunity cost. On the contrary, if it lacks stock, it can impede the production of products.

Besides, if the audit (Also see Ways to Perform an Effective Human Resource Audit) or who is responsible for the company’s inventory audit knows the flow of stocks well, he may help in making sure that the company can run its operations smoothly. This is because he knows whether those stocks are available and whether the company will need them in the future.

Disadvantages

1. In big companies, the auditors (Also see Internal Auditors and Their Roles in Consulting) may need to conduct inventory audits very frequently. As a result, this can increase the cost the company spends on audits. In most cases, the auditors may need to limit the audit scope and may turn to and adopt test checking, which means that they will only select and check some samples instead of performing a detailed checking.

2. As human is involved in the process of auditing, manipulation may happen. In some occasions, the auditors (Also see How to Lead a Team as An Auditor?) are forced to alter the data and express an audit opinion which is not true. The company will not get fruitful results from the inventory audits if this happens.