Stock Audit & Inventory Verification

Reserve Bank of India lending and prudential norms for banks/NBFCs: as part of their credit monitoring framework for working-capital finance secured against stock and book debts, lenders require periodic stock audits of borrowing entities — an independent, physical verification and valuation of hypothecated inventory and receivables, carried out by a chartered accountant or stock auditor empanelled with the lending bank. The stock audit report directly feeds into the lender's calculation of Drawing Power (DP) — the maximum amount a borrower may draw against a cash-credit or working-capital limit at a point in time — since margins (haircuts) are applied against the audited value of stock and debtors before arriving at DP, and audit findings (ageing of debtors, obsolete or slow-moving stock, discrepancies against the borrower's own stock statement) can result in a downward revision of the sanctioned limit. Frequency and the specific exposure threshold at which a stock audit becomes mandatory are set by each lender's internal credit policy under RBI's broader prudential framework, rather than a single uniform RBI-mandated rupee threshold or margin percentage applicable across all lenders — engagement scope, periodicity and reporting format should therefore be confirmed against the specific bank/NBFC's own stock audit format for the account in question rather than assumed from a generic industry figure.

Stock audit is the verification of a borrower's inventory and the receivables for the banks and the lenders — the physical verification of the stock, the reconciliation of the stock records with the books, the valuation at the lower of cost and net realisable value, the ageing of the receivables and the stock, and the report on the hypothecated assets to the lender. The stock audit is the lender's check on the assets it has lent against, and it is a routine requirement of the working capital facilities.

The stock audit is the verification of the security behind the working capital loan — the inventory and the receivables the bank has hypothecated, physically verified and reconciled with the books, valued and aged, and reported to the lender. The audit is conducted periodically under the bank's guidelines, and its findings — the shortages, the obsolete stock, the slow-moving receivables — are the adjustments the lender makes to the drawing power.

The cost of a poorly conducted stock audit is the lender's discovery of the gap at the default: the stock that was never physically there, the receivables that were never collected, the drawing power that was based on the fiction. The stock audit is the discipline that keeps the facility honest.

This service is for businesses with the working capital facilities and the lenders requiring the audits. We verify the physical stock and reconcile it with the books, test the valuation at the lower of cost and net realisable value, age the stock and the receivables, and report the position with the adjustments — so the borrower's security position is real and the lender's drawing power is accurate.