Procedure Followed by Auditors for Inventory Audit in UAE

Businesses that hold inventory are suggested to conduct the inventory audit, which enables them to know about the goods that are excess/short as per the accounting records and other relevant checks on inventory. The inventory audit helps the companies in Dubai to effectively stock their businesses, which play a crucial role in boosting their profits. Further, it is vital for companies to account for inventory losses that occur as a result of wastage, pilferage, dormant stock, etc.

Auditing firm in Dubai adopt procedures that involve multiple methods to conduct inventory auditing. All those steps followed by the auditors help the companies get accurate information about the inventory thereby minimizing the risk of stock-out.

Why the Inventory Audit is Performed?

Manufacturing firms or businesses with large warehouses or a small number of inventories are the beneficiaries of inventory auditing. By enlisting the top auditing services in Dubai, the following goals can be achieved:

Conducting the inventory audit will allow companies to achieve the following goals:

  • Ensure that actual inventory counts match with business records
  • Prevents inventory losses
  • Helps companies determine the efficiency of warehouse procedures
  • Helps to tackle loss, theft or misappropriation
  • Prevents losses from unnecessary overstocking
  • Helps to determine obsolete/expired / out of demand stocks

How Auditors in Dubai Conduct Inventory Audits?

Auditors follow the International Accounting Standards or IAS 2 which enlists the requirements for accounting for inventory. As per the IAS 2 standards, inventories need to be measured at a lower cost and Net Realisable Value (NRV).

The clients are also required to fill in an inventory questionnaire through which the auditor ensures that whether or not the client has put in adequate stock taking procedures. Based on the answers to the questionnaire, the auditor decides whether the client’s result of stock-taking can be relied upon.

Key Steps Followed by Auditors in the UAE for Inventory Audit

1. Cutoff Analysis

The cutoff in the ideal case should be a balance sheet date but the management is also advised to do the inventory auditing at intervals. Auditors in Dubai should ensure that their clients have put in place efficient cut-off procedures while halting the reception or shipments of goods into the inventory while carrying out the physical count. Auditors can test the inventories for goods shipped or received prior to and immediately following the date of the inventory count. The auditor can check if the companies are properly accounting for such goods received into the inventory.

2. Observe the Physical Inventory Count

Auditors verify the existence of inventories by observing the company’s inventory count procedure. Observing the physical inventory count would help the external auditors aware of the company’s inventory count procedure and the likely errors associated with it. Along with observing the inventory count, the auditors can also perform an inventory count independently based on the marks placed on the inventory to do the independent check.

3. Perform Tests on Goods of High-Value

Sometimes, a company’s inventory stock may consist of unusually high-value goods. In such cases, external auditors are required to exert a special focus on counting such goods in the inventory. The auditors in such cases must ensure that the goods are valued accurately and the inventory is held within the control checks of the company.

4. Conducting Test on Costs

The external auditors check costs in the latest supplier invoices to verify if it matches the costs in the company’s inventory valuation. The costs are also required to be re-checked with subsequent year sales invoices to check that the inventories are held lower of cost or realizable value as per International Financial Reporting Standards.

5. Perform Checks on Older Inventories

Auditors check for old inventories through ageing reports of inventories to ascertain whether they are physically available or not. The auditors also check for obsolete, expired or out-of demand stocks. The test on older inventory is required as perishable goods can spoil, damaged or fall out of demand. Such goods on the inventory may have lost some value and the effect for the same also needs to be given in the financial statements. The effect for completely unused stock required 100% provision and other unused stock depends on the recovery.

6. Checking Error-Prone Goods

It is possible to have a trend of error in the inventory records of previous years on specific goods. To minimize the risk emanating from such risks, auditors will conduct a recheck on such goods. Determining the error-prone inventory items would help the companies reduce the losses.

7. Perform Tests on Inventory Ownership

Auditors conducting the inventory audit are required to determine whether the owner of the inventory in the warehouse actually rests with the company. There could be customer-owned inventory or inventory on consignment from suppliers. External auditors analyze the purchase records to determine whether the inventory is owned by the company.

8. The Validity of Stock-in-Transit as per the Financial Records

Sometimes, the companies hold stock-in-transit like a company buys stock from suppliers based on an “Ex-works” basis, under these situations as soon as the stock is transported from the supplier warehouse the company becomes the owner of the goods. The auditors need to check the purchase invoices, terms of purchase, shipping/ transport documents and physical receipts by the company’s warehouse to ensure that as on the cutoff (balance sheet) date the same was actually goods-in-transit.

Why Choose Jitendra Chartered Accountants?

To understand the real goal of inventory auditing, the companies need to enlist the services of reputed auditing companies in Dubai. Being one of the registered auditing firms in Dubai, UAE, Jitendra Chartered Accountants ( JCA) have helped thousands of clients with inventory auditing. The highly qualified auditors in JCA ensure that the companies’ accounts comply with local and international regulations. Getting the inventory auditing done from JCA’s auditors will boost the company’s credibility and eliminates the risk of inaccurate valuation of inventory.

By enlisting JCA’s services for inventory auditing, the companies can prevent losses from unnecessarily stocking the warehouses, fix the errors in their warehouse procedures, and help count the obsolete stocks. JCA’s team of well-experienced external auditors lead the companies to growth and stability by conducting efficient inventory auditing.


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