How to do Stock Audit for Animal Feed :by CA Singathala

How to do Stock Audit for Animal (Cattle) Feed

Usually people will think that doing stock audit is easy for Animal Feed. Yes, it's real only when you are familiarized with Animal Feed Process & Procedures. In 90% of Newly qualified professionals are not familiarized with these procedures. So, keep in the mind the same fact, i am posting this article.

Agenda of Article

• Stock Audit Basics
• Animal Feed Stock Audit Experience
• Doing Work Papers
• Pro Tips

Stock Audit Basics

Whenever you are going for Stock Audit, you need to prepared with the following things.

• Keep all Deliverables in One Place, day before Audit
• Know the Business Nature & the Stock Maintenance Procedure
• Ask the client for data before entering into the Premises & Analyse the Material,  Codes assigned etc.,
• Make better Plan to complete Audit within the Time
• Ask the client to show the Classification wise Inventory Places in Godown
• Check the Inventory held in Proper Place or not
• Observe the Premises for Safety Measures
• Note all your observation with Location wise
• End up the audit with Clarifications

Animal Feed Stock Audit Experience

One of my client asked for Animal Feed Stock Verification in Tamilnadu. And also he also requested to complete Audit within 24 Hours. Basically i was in hurry to accept the engagement, so, i accepted without knowing the facts. I thought it will be usual Stock Audit. But when it was totally differenet. When i entered into the Animal Feed Godown, i got shock by seeing the Inventory. Because my expectation totally reversed. I never expected that much stock in Godown. And also i need to verify almost 75% of stock within one business day. This situation kept me under pressure. In this situation i taken 15 minutes time to reduce my Pressure levels. And then myself prepared with future upcomings from this audit & finally started with data. Taken 75% coverage of samples by taking the value into Consideration. 

I asked the client for Stock Details with Inside godown location details for selected samples. At the same time, client also in hurry to complete stock audit within time. So, also cooperated nicely & gave data immediately and explained the stock. These are the Main points client had explained along with my suggestions.

• Usually Animal feed will have daily sales that means there is no sundays & holidays: This Point will comes up in your Cutoff Procedures. So, you need to be very careful when you are doing Stock Audit. You need to ask the client to stop moving in & out Stock until Audit gets over.
•  The Feed will be kept in Different bags with different Weights & Logos, Colours: Here you need to familiarized with bags and the rows & places, how they will keep the stock. In Animal Feed they will keep stock in Batches wise like 1st Batch, 2nd and so on... And they will keep stock in one place like this.

Format of Recording Stock in Books:H*W.

First they will keep 5 bags in one side and 3 bags in other side. And at the same time they will reverse the ration in second row like this 3 bags in first side & 5 bags in second side. Like this they will keep upto 11 to 20 Rows in Place. So they will record in stock books like this (11 Rows * 8 Bags) * No of Locations (See Image). This will made them to count easily. So, here you need to familiarized with this Format and also need to prepare work papers in same format. This will help you when you are getting differences.

• Classification of inventory: Here you need to very careful, why because almost 2 to 3 tones of Raw Material will reflect in your Work Paper as difference. This will arise because of Wastage. Usually Animal Feed Companies will very the quality of RM whenever it comes to Godown. At this time they will put small holes to bags for collecting Feed from Bags. And also they will use hooks to arrange the bags. In this process every bag will have small holes. This holes will lead to wastage. In this area you need to use your Professional Judgement to Count Bags with Proper Weights. Clent will count every bag, even though it's having 1 KG of RM instead of 75KG's. So, you need to be very careful.
• Cutoff Procedures: Here you need to take Lastly 5 Transaction on Year End Date and First 5 Transaction on Day 1 of Next year. And observe whether stock recorded in Correct Period are not. take GRN & Gate Registers for Documentation of Your Work Paper.

 Doing Work Papers

Before Going to Work Papers, check the below points whether you completed are not.

1. Whether Stock List has been generated from ERP, infront of you or not.
2. Check Value of Inventory is matching with Books or Not before proceeding
3. Check Whether All your samples has been verified or not
4. Cross check whether client gave reliable answer for stock differences or not.
5.  Note all observations in One place and confirm that all had been discussed with the client

Once you confirm with the above things, then you need prepare all work papers for your documentation & report purpose. Usually These are the Deliverables will prepared by CA's

• Total Stock List
• Working on Samples i.e whatever you did during the Audit
• Gate Register having last 5 days details
• Cutoff Work Paper for Last 5 & First 5 Transactions
• Cutoff Documents like Invoice, ERP Screen shot showing Entry Passed date etc.,
• Observations

Important Points

• All Workpapers above discussed need to be signed by Management

• Sample work papers need to show the Difference Calculation along with Remarks Column. Usually People will use these fields in WP: Sl.No, Material Code & Description, Qty & Value as per Book,  Qty & Value as per Audit, Diff & Remarks 

• Observations need to reliable. 

• Note that you should not sign on any of the workpaper, in which client asked for. 

Pro Tips

• Make sure you wear T Shirt & Comfortable Trouser. This will help you to check Stock Rows from Top to down.
• Make sure you wear Helmet for safety
• Make sure you got Stock Details in H*W Format
• Make sure there is no Transactions during the Audit, If having transaction then roll forward your workings & Compare stock
• Ensure all stock had been accepted & there confirm that there is 0 Rejected Stock in Inventory.
• Make sure Stock incharge had been signed on all deliverables.
• Check Middle Rows of Bags, this will be filled up with Gaps. So ensure Rows are having Proper Bags with Matching Count
• Don't waste time by discussing reasons immediately for differences. Note it down differences & ask all at a time in Godown & Not in Office.
• Check H*W Count matched with Management Parallel Count. If not reverify the Bags.

I hope i covered all points in this article. I feel this will helpful you in your audits. Let us know if you have any doubts on this article in Comments section. See you guys in Next Article....

Thanks & Regards
CA S Praveen Kumar reddy