Inventory & Stock Audit Services — Physical Verification, Reconciliation & Shrinkage Reporting

Inventory & Stock Audit Services in India

Inventory is often the single largest asset on a company's balance sheet — and the one most exposed to shrinkage, theft, miscounting, and book-versus-physical discrepancies. Whether you run a manufacturing plant, a retail chain, or a distribution network with multiple warehouses, knowing exactly what stock you hold — and whether your books match reality — is the foundation of accurate financial reporting, bank compliance, and operational control.

N D Savla & Associates conducts inventory stock audits for manufacturers, retailers, distributors, warehouses, and bank borrowers across Mumbai and India. Our stock audit teams combine physical counting discipline with accounting-level reconciliation — so the report you receive is useful not just for your statutory auditor, but for your operations and finance teams as well.

What Is an Inventory Stock Audit?

An inventory stock audit — also called a physical stock verification or stock take — is an independent exercise in which a qualified team physically counts, inspects, and values the inventory held by a business, and then reconciles that count with the company's stock records, ERP system, or books of accounts. A complete inventory stock audit covers:

• Physical count and verification — All items of inventory are physically counted, tagged, and recorded — raw materials, work-in-progress (WIP), finished goods, packing materials, and consumables.
• Book-versus-physical reconciliation — The physical count is compared line by line with the inventory records in your ERP or books. All differences — surpluses and shortages — are documented and investigated.
• Inventory valuation review — We verify that inventory is valued correctly — at cost or net realisable value (NRV), whichever is lower — as required by AS 2 or Ind AS 2.
• Slow-moving and dead stock identification — Items that have not moved for 90, 180, or 360 days are flagged for management review. Dead stock that needs to be written off is identified with supporting evidence.
• Damaged and obsolete inventory — Physically damaged, expired, or obsolete stock is segregated, documented, and reported separately with recommended treatment.
• Shrinkage and pilferage analysis — Where book-versus-physical differences suggest systematic shrinkage or pilferage, we document the pattern and recommend controls.
• Cut-off verification — We verify that goods received or dispatched around the audit date are recorded in the correct period — a common area of financial reporting error.

Types of Inventory Stock Audit — Which One Does Your Business Need?

Who Needs an Inventory Stock Audit in India?

• Manufacturing Companies — Raw material, WIP, and finished goods across one or multiple plants. Physical stock audits are mandatory for statutory audit purposes and for working capital loan compliance with banks.
• Retail Chains and FMCG Distributors — High-volume, high-SKU businesses where shrinkage and book errors accumulate quickly. Regular stock audits — monthly or quarterly at each outlet or depot — are the only reliable way to keep inventory records accurate.
• Pharmaceutical Companies and Medical Device Distributors — Batch-tracked, expiry-date-sensitive inventory where physical verification must include batch number, expiry date, and storage condition checks alongside the count.
• E-commerce and Third-Party Logistics (3PL) Operators — Multi-client warehouse environments where inventory belonging to different principals is stored together. Stock audit verifies that client-wise inventory matches the WMS records.
• Bank Borrowers with Inventory-Backed Working Capital Loans — If your working capital loan is secured against inventory, your bank requires a periodic stock audit and stock statement certification. Drawing Power (DP) is calculated on the basis of verified inventory.
• Construction and Project Companies — Site-level inventory of materials — cement, steel, electrical fittings — that is spread across multiple project sites and needs periodic physical verification.
• Gems, Jewellery, and Luxury Goods Companies — High-value, item-specific inventory where count accuracy and valuation precision are critical. Our jewellery stock audit teams handle piece-level verification with hallmarking and purity documentation.

For companies that also need their warehouse operations independently audited — storage conditions, process compliance, and 3PL performance — see our Warehouse Audit services.

How We Conduct an Inventory Stock Audit — Our 8-Step Process

1. Pre-Audit Planning and Scope Finalisation — We meet with your team to agree on the scope — which locations, which categories of inventory, which valuation basis, and what reporting format is required. For bank stock audits, we obtain the bank's format and requirements upfront. We review your current inventory records, ERP reports, and previous audit findings to plan the team size and timeline.
2. Cut-Off Instructions to the Client Team — Before the physical count begins, we issue cut-off instructions — no goods are to be received or dispatched during the count unless documented and tagged separately. All pending purchase receipts and dispatch challans as of the count date are listed, ensuring the physical count and book records relate to the same point in time.
3. Physical Count — Location by Location, SKU by SKU — Our audit team physically counts every item of inventory — bin by bin, shelf by shelf, rack by rack. Items are tagged with pre-numbered count tags to prevent double counting. Count sheets capture item description, unit of measure, quantity, batch number, condition (good / damaged / expired), and storage location.
4. Second Count and Recount of High-Value Items — For high-value or high-risk items, a second independent count is conducted by a different team member. Where the two counts differ, a recount is done before the final count is accepted. This eliminates counting errors on the items that matter most.
5. Book-versus-Physical Reconciliation — We take the final physical count and compare it line by line with your ERP or book records as at the count date. All differences — shortages or surpluses — are listed individually with quantity, unit cost, and total value. The reconciliation covers 100% of SKUs counted, not a sample.
6. Analysis — Slow-Moving, Dead, Damaged, and Discrepant Stock — We analyse count results to identify: slow-moving items by age bracket (90, 180, 360 days+); physically damaged or expired items requiring write-off; items showing systematic discrepancy patterns that may indicate pilferage or recording errors; and high-value surplus items that may indicate unrecorded receipts.
7. Valuation Verification — We verify that the valuation in your books complies with AS 2 (Valuation of Inventories) or Ind AS 2. We check that cost is correctly calculated (FIFO, weighted average, or standard cost as applicable), and that net realisable value is applied where it is lower than cost for slow-moving or damaged items.
8. Stock Audit Report — We prepare a comprehensive stock audit report covering: physical count summary by category, book-versus-physical reconciliation with all differences, analysis of slow-moving and dead stock, damaged and obsolete inventory, valuation summary, key observations, and management recommendations. For bank stock audits, we prepare the report in the bank's prescribed format and provide the Drawing Power certificate separately.

For companies that need fixed assets physically verified alongside their inventory stock audit, our Fixed Assets Audit and Verification service covers the complete physical assets side of your balance sheet.

Bank Stock Audit in India — What Lenders Require and Why It Matters

If your company has a cash credit (CC) limit, overdraft (OD) facility, or working capital demand loan (WCDL) secured against inventory, your bank requires a periodic stock audit — typically monthly or quarterly — conducted by an independent CA firm empanelled with the bank.

• Drawing Power (DP) Calculation — The bank extends credit only up to the Drawing Power — calculated as a percentage (typically 75–85%) of the value of eligible inventory (paid-for stock, not goods received on credit). The stock audit verifies the quantity and value of eligible inventory and certifies the DP.
• Stock Statement Verification — We verify the monthly stock statement submitted by the borrower against physical count and supporting records — purchase invoices, GRNs, dispatch challans. Discrepancies are reported to the bank.
• Debtors and Creditors Check — Most bank stock audits also include a review of the debtor age schedule and creditor position to verify the accuracy of the working capital position reported to the bank.
• Red Flag Reporting — Where we find material discrepancies between the stock statement and physical stock — which can indicate diversion of funds or over-drawing on the CC limit — we report these as red flags in our report to the bank.

Common Inventory Discrepancies Found During Stock Audit

Inventory Stock Audit and GST — The Connection You Cannot Ignore

• ITC reversal on stock write-offs — When inventory is written off, the GST input tax credit (ITC) claimed at the time of purchase must be reversed. Without a properly documented stock audit, quantifying the reversal is impossible — and incorrect ITC reversal is a common GST audit observation.
• Stock reconciliation in GSTR-9 annual return — The GSTR-9 annual return requires a reconciliation of your purchases, sales, and closing stock. A clean stock audit report makes this reconciliation significantly easier.
• GST department stock verification — GST officers can conduct physical stock verification under Section 71 of the CGST Act at any time. A company that maintains clean, regularly audited stock records is far better positioned to respond to such a visit.
• E-way bill reconciliation — Stock dispatched against e-way bills must match the dispatch records and the reduction in physical stock. Our stock audit process includes an e-way bill reconciliation check where relevant.

N D Savla Stock Audit vs a Basic Stock Count

Why N D Savla & Associates for Inventory Stock Audit Services

• Experienced field audit teams. Our inventory stock audit teams are trained for physical counting in factory, retail, warehouse, and pharmaceutical environments — not just accounting graduates doing a desk review.
• Multi-location capability. We deploy multiple concurrent teams for companies with branches, warehouses, or dealer networks across Maharashtra and pan-India.
• Bank-empanelled and auditor-accepted. Our stock audit reports are accepted by nationalised banks, private sector banks, and all statutory auditors including Big Four firms auditing your accounts.
• Surprise audit capability. We conduct unannounced inventory stock audits for companies that want the integrity of a true surprise count — particularly useful for pilferage prevention.
• GST-aligned reporting. Our stock audit reports are designed to support your GSTR-9 reconciliation and ITC reversal calculations — not just your statutory audit.
• Partner-supervised engagement. Every stock audit is supervised by a Chartered Accountant partner. The report carries professional sign-off, not just a junior team's output.

For businesses that need their supplier-level inventory and supply chain risk independently assessed, our Concurrent Audit services provide real-time transaction-level verification.

Frequently Asked Questions — Inventory Stock Audit in India