A business should be creative and innovative in order to face the business competition that get harder each day. It also occurs in trading business. A trading business is the business that the main activities are buying products and reselling them without changing the shape of the goods. The purpose of this sales is to gain profit. Thus, it needs an adequate inventory management and inspection.
The inventory management includes proper and accurate record keeping. Inventory inspection is a crucial management function since it involves the invested amount and affects the effectiveness and efficiency of business activities. Therefore, inventory audit is required to reduce the risk of difference, lost, fraud and ensure that the procedure has been properly performed and allows improvement.
Inventory audits are often a complex and time-consuming because:
- In general, inventory is a large account in the balance sheet, and is often the largest element of the total working capital (working capital account). 2. Supplies are located in different locations, which needs complicated physical control and calculation. 3. The various inventory causes difficulties for the auditor.4. Inventory assessment is also difficult due to the financial factors and the need of costs allocation into inventory.5. There are some inventory valuation methods that can be applied. Each company has one consistent method applied annually.
The inventory audit has the following objectives:
- Assess the inventory fairness
- Ensure the proper internal inventory control
3.Ensure the conformity between the inventory assessment method (valuation) to the applied accounting principles.
- Ensure the conformity between inventory recording system with applied accounting principles.
Recommended inventory audit procedures are as follows:
- Stock Opname. Stock opname is done for inventory in the company warehouse. For outgoing consignment goods and goods stored in public warehouse, stock opname must be done. It can be conducted by the end of the year or before / after the end of the year.
- Observe stock opname. Review the stock opname physical calculation. Check the final inventory list by the following inspection procedure: a. Check mathematical accuracy. b match the quantity per book to inventory stock (inventory). c. Match quantity per count to count sheet (auditor). d. Match the total value to the inventory ledger. e. Send confirmation to outgoing inventory consignment.
- Review the inventory concept
- Prepare stock opname final result. Make the conclusion based on the inventory inspection result and create adjustment proposal if necessary.
- Inventory adjustment.
In order to perform the Inventory Audit process runs properly, a good internal control on inventory is required. Following are the characteristics of good internal control:
- To separate the duties and responsibilities between purchasing, goods receiving, warehouse, accounting and finance departments.
- Use forms with sequence numbers, such as: purchase requisition and purchase order, delivery order, receiving report, sales order, and sales invoice.
- The availability of authorization system for purchasing, sales, received cash/bank or outgoing cash/bank.
- Budgeting for the purchase, production, sales, and incoming and outgoing cash.
From the explanation above, it is concluded that inventory audits at trading companies provides enormous benefits for the company to reduce the risk of difference, loss, prevent the fraud and ensure that the procedure precisely implemented. Proper management and adequate inventory inspection is needed to enable us to compete with the hard competition.
