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  • Writer's pictureHH Partners

Why is inventory count important at year end?

By: Chris Lee, Auditor

With December 31 year end approaching, businesses and audit firms are busy with organising of stock count.

Inventory is arguably one of the most important asset of a business not only because it is valuable but also the business rely on it to generate income! In addition, businesses often use inventory as a collateral to finance additional purchases of inventory or pay bills. Therefore, management should ensure that a well-organised inventory count be performed regularly to protect assets of the business.

How often should inventory count be made?

Depending on the type of inventory, businesses should perform a count at least once or twice a year with more valuable inventory counted even every day or month. Any discrepancy found in the stock audit is necessary to be corrected when compared to physical stock. There are several reasons why we need to perform a inventory audit, including to identify slow-moving and dead stock, any discrepancy between book inventory and physical inventory and make sure the proper preservation and handling. By performing an audit, we can confirm the ownership of inventory, prevent pilferage and fraud and maintain a good control mechanism in running the business. Furthermore, inspecting the security and condition of inventory are also necessary because we need to ensure that only authorised person can access the warehouse and ensure the stock in a good condition for sale.

Suggested inventory count processes

A proper stock count takes a great deal of effort to complete an accurate physical inventory count, so companies tend to limit the number of counts completed per year.

Our suggestion on a proper stock count would be:

  • Use count tags: Tags should be sequentially numbered so that all inventory can be individually tracked as part of the counting process.

  • Preview inventory: Review the inventory several days in advance of the scheduled stock count. If there are missing part numbers, or if items appear to be in a condition that would be difficult to count, notify the warehouse staff to make the necessary corrections.

  • Brief count teams: Assemble two-person teams to count the inventory and instruct them in their counting duties. These duties involve having one person count inventory while the other person marks down the information on a count tag. One copy of the tag stick on the inventory while the teams retain the other copy.

  • Freeze activities: To avoid any cut-off error, stop all deliveries from the warehouse and receiving from outsider before the stock count day.

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