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Stock Control

Control Objectives for Stock Control

(a) To ensure that adequate and appropriate stocks are held to meet the
demands of sales and production;
(b To avoid overstocking;
(c) To ensure that all stock movements are valid, authorised, correctly
processed, accounted for, and accurately reflected in the accounts;
(d) To ensure stocks are securely and appropriately stored in order prevent
loss, theft, deterioration or misappropriation of stock items;
(e) To ensure that stock records are accurately maintained, adequately
protected from unauthorised access, and regularly verified;
(f) To ensure that stock discrepancies are promptly highlighted, investigated
and resolved;
(g) To ensure that stock write-offs, scrap and other disposals are justified,
authorised and correctly handled;
(h) To ensure that stock levels are monitored in order to detect and react to
replenishment requirements, obsolete and slow-moving items;
(i) To ensure that all stockholdings are traceable to a known storage
location;
(j) To ensure that management are provided with accurate and timely
information on stock levels and usage; and
(k) To ensure that liaison between the stock control function and other
relevant activities (i.e. sales and production) is sufficient to enable the
achievement of the organisation's objectives.

Risk & Control Issues for Stock Control

1 Key Issues

1.1 Have authorised and documented stock control policies and


procedures been implemented, and how can management be sure that they
are fully complied with?
1.2 How does management determine the current and future stock
requirements, and how can they be sure that actual stock levels can
accurately meet sales and production demands?
1.3 Are management made aware of either overstocking or stock
shortages, and how are their reactions evidenced?
1.4 What measures ensure that all stock movements are valid,
authorised, correctly processed, and accounted for?
1.5 What mechanisms prevent the acceptance and processing of invalid
or unauthorised stock movements?
1.6 How can management be assured that stock is securely stored?
1.7 What processes ensure that stock valuations are accurate and
correctly reflected in the inventory and accounting records?
1.8 What mechanisms prevent the manipulation, distortion or falsifying
of stock records?
1.9 How can management be certain that all stock adjustments, write-
offs, and scrap disposals are justified, authorised and correctly processed?
1.10 How would management be made promptly aware of slow-moving
and potentially obsolete stock items?

2 Detailed Issues

2.1 Are processes in place which ensure that adequate information is provided
to facilitate adequate stock planning to achieve business objectives?
2.2 Have suitably trained and experienced stock control staff and management
been provided?
2.3 What prevents the overstocking of items?
2.4 How are stocks maintained at the optimum level, taking into account such
factors as supplier or production lead time, etc.?
2.5 Are raw materials, items in production and finished goods discretely
identified, physically tracked, and correctly reflected in the accounts?
2.6 Are management promptly alerted to low stock levels, and how is their
reaction evidenced and monitored?
2.7 Are all stock movements and adjustments supported by documentation
and trailed?
2.8 Are all damaged items and those returned from customers, etc. accurately
identified and appropriately returned for credit?
2.9 Is it possible to verify the validity of stock sales through to the accounts
receivable system?
2.10 Is it possible to verify all stock movements to the production facility and
agree stock inputs to the output of finished goods?
2.11 Are stock issues of raw materials promptly actioned and the associated
items moved into the production area to minimise workflow disruptions?
2.12 How can management be certain that all stock issues are authorised and
accounted for?
2.13 What processes ensure that stock items are used in rotation so that items
do not deteriorate?
2.14 How can management be assured that all stock deliveries (including those
made directly to production or sales locations) are identified, confirmed as
correct, and duly accounted for?
2.15 How can management be certain that the appropriate accounting
treatment is applied to stock items (i.e. fixed or current assets, write-off to
revenue, appropriate timing, etc.)?
2.16 What measures prevent the theft or misappropriation of stock items?
2.17 Where appropriate, are all situations where stock is either stolen or
damaged reported to the police, and claimed against the insurers?
2.18 How can management be sure that all stock movements are accurately
reflected on the stock control/inventory records?
2.19 Are stock records adequately protected from unauthorised or false
entries?
2.20 Are the stock records subject to regular verification, if so, how often and
how is this evidenced?
2.21 How can management be assured that all stock items are subject to
reliable verification and that the valuations contained in the published accounts are
complete and accurate?
2.22 How can management be sure that the prices used to evaluate
stockholdings are valid, accurate and up-to-date?
2.23 What mechanisms ensure that all stocktaking variances are accurately
recorded, reported to management, investigated and resolved?
2.24 Is adequate authorisation applied and evidenced in support of all
stocktaking adjustments?
2.25 Are adequate and secure stock storage facilities provided in order to
prevent deterioration of items and losses due to theft?
2.26 Can the precise storage locations of all stock items be promptly
determined?
2.27 Are stock write-offs, disposals, etc. authorised at the appropriate level and
how is this evidenced?
2.28 What measures ensure that the best price is obtained for stock disposals
(i.e. for scrap) and are such transactions authorised and the relevant proceeds
confirmed?
2.29 How is accuracy of all data input from other systems (i.e. purchasing)
confirmed?
2.30 How is the accuracy of data output to other systems (i.e. product costing,
accounts receivable, etc) confirmed?
2.31 How is the accuracy and integrity of the stock system records assured,
and what measures prevent unauthorised access to the stock data?
2.32 How can management be assured that management information extracted
from the stock system is accurate, timely and complete?

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