Inventory Verification Issues Due to COVID 19

Be sure (double-check and be sure again) about the industry

The Inventory Verification exercise is undertaken by most of the companies at the year-end i.e. by 31st March each year. This verification is very important for the companies having stored their stock at various locations at depot or at various branches. Many a times this task of inventory verification is given to the chartered accountant or an independent agency. There may be a single agency that will carry out the verification at all the locations and give their consolidated report to the company, or there may be different agencies, chartered accountant firms at respective locations who carry out the verification and submit their report to the company. It may also be possible that, at some locations which are having majority of the stocks at the year end the company will appoint the agency and for all other locations the report by the company offices will be taken.

The company then consolidates at their end. Many companies give very much importance to this audit exercise of inventory verification because these companies will not able to get inventory verification done properly during the year. The statutory auditors of the company can also mostly reply on the inventory verification carried out by the company at the yearend by an independent agency. When such type of exercise is carried out as on the last day of the year i.e. 31st March on the single day, the huge resources and well advance planning, & monitoring is required. In such a case, the consolidation and its rectification for the day is a difficult task as the companies will get very little time for getting the issues, qualifications in the report to be rectified from various locations depots, or branches.

This exercise may not be helpful to carryout in-depth verification of the inventory. The other way out is to have inventory verification during the specific period at the end of the year. Most of the companies mainly decide last week or last fortnight for the inventory verification & requiring submitting all the inventory verification reports in the third week at the year end. The object behind this is that, the reification will be done before the year end and correct picture of the inventory is reflected as on 31st March. Till last year, the said exercise of inventory verification was carried out on or before the yearend i.e. 31st March and hence whatever stock verified as on the date should be get corrected by 31st March.

However, this year the said exercise of inventory verification will be carried out after the year end i.e. in next financial year. Due to this, the stocks as per books and as per physical verification if shows any shortage or excess that has to be corrected to the back date of 31st March. This can be understood by example as follows. Say Inventory Verification was carried out on 01st May, 2020, for item X, then, Sr. No. Name of the Item Qty as on 31st March, Qty as on 01st May, Qty physically verified as per Books as per Books as on 01st May 01 X 100 80 70 Excess/Shortage 10

In this case the Qty as on 31st March, to be taken as 90 (100-10), if there is no shortage during the period 01st April to 01stMay. Generally, till last year, it was possible that the stock records was kept closed for a specific period of inventory verification exercise but during this year it may not be possible as the next financial year has already begin and there will be rush for the stocks inwards as well as our wards for the close down period.