Cost and Management Accountant play pivotal role in Stock Audit of various industries, but the role in banking sector is more crucial. Empanelment in banking sector is a altogether different experience. After Conducting Concurrent Audit and Stock Audit for various banks I would like to share some practical aspects of the same.In the context of rapid growth of credit, effective supervision & monitoring of advances have assumed considerable importance in Indian Banking Sector. In case of working capital finance, one of the measures that is deployed by the lenders for ensuring the end use of funds and monitoring the borrowal account is the system of periodical Stock Audit by the independent qualified Stock Auditors.
Stock Audit policy
The ObjectiveThe main objective of stock audit is to ascertain whether the security (borrower’s stock and debtors) against which working capital finance has been made is safe and is valued correctly. It is the duty of the Stock auditor to verify the physical existence and absolute ownership of inventory / movable property charged to the bank and to examine the genuineness of the Sundry Debtors list submitted by the borrower The various purposes expected to be achieved through stock audit may be summarized as follows
- To carry out physical examination of stock to ascertain the quality, value and age of the inventory thereby identifying whether there exist any obsolete stock & if yes, whether it has been segregated & written off and excluded while arriving the drawing power
- To verify whether the stock is adequately and properly insured against fire and other natural calamities (in appropriate cases against other risks like theft, burglary, marine, riots etc. as per sanction) and kept in secured manner
- To ascertain whether physical stock tally with the stock statement submitted to the banker. (This is the grey area and Auditor’s Responsibility is enormous.)
- To ascertain whether hypothecated stock is realizable.
- To physically verify the value of paid Stock (by excluding the total value of unpaid stock with reference to the level of Trade Creditors and the total value of stock procured under the Non Fund based credit limits viz., FLC( Foreign letter of credit) /ILC (Inland letter of credit)/ BG) available in the borrower’s location and confirm the same together with the eligible Book Debts are sufficient to cover the total amount outstanding in the Working Capital Limits (Fund based) along with the required level of margin.
- To verify whether the value of stock (procured under Non fund based limits) available on the date of physical verification along with the eligible Book Debts emanated from the sale of such goods is sufficient to cover the total amount of Bill Liability under the Non fund based limits including Bank Guarantee Limit for Supply of Goods
- To verify related records / registers / Books of accounts such as Stock Register, Purchase Register, Sales Register, Purchase Invoices, Sales Invoices, Credit Notes, Debit Notes etc., maintained by the borrower.
- To ensure proper preservation / storage and handling of stock.
- To ensure the stock under hypothecation have not been hypothecated to other Banks.
- To examine the end use of the funds and verify whether any diversion of funds, interlocking of funds among sister concerns.
- To confirm whether all the sanction conditions are complied.
- To confirm that stock is owned by the borrower and finance is made against value of paid stock only.
- To examine the age wise debtors outstanding as per books and as per statement submitted by the borrower, steps taken for recovery of long pending debtors and likely instances of debtors turning bad, if any.
- To ensure the timely submission of Stock / Book Debts statement, QIS statement etc.,