What is an Inventory Audit?

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  • Written By: J. Airman
  • Edited By: Jenn Walker
  • Last Modified Date: 02 March 2020
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An inventory audit is an accounting procedure designed to keep track of a company's products and merchandise. Inventory is a current supply count of company owned products. Numbers produced during inventory counts are closely evaluated by the auditor during the audit phase. Ordering managers and company owners typically perform these procedures to gain valuable information that helps them avoid inventory problems, such as overstock and shortfalls. Computer inventory software often simplifies the auditing process by making inventory tracking a more accurate and continuous process.

Conclusions drawn from an inventory audit commonly influence future policy and decision making for a company. For example, prevailing market trends are usually reflected in their impact on company inventory. A prevailing market trend is a noticeable change in the purchasing habits of consumers. The auditor reviews current and past inventory numbers of a company to find patterns and anticipate the future needs of their customers. Regular audits can help a company move with the changes in the industry while keeping a lean inventory.


The information supplied by an inventory audit is most useful when inventory counts are performed in a legitimate and uniform manner. The accuracy of an inventory count can be increased by performing an on-site audit with each supervising manager. It is generally beneficial to install redundant procedures that ensure proper counting for all the types of inventory held by the company. Displaying current inventory charts and allowing employees to have access to view computerized inventory software can also provide them with accurate information to communicate to the customer. Auditing company inventory accurately allows for both minor and major decisions to be made with confidence to improve the profitability of a company and increase supply to the right markets.

Inventory methods and auditing procedures vary greatly from one company to the next, even within the same industry. Losing control of the inventory numbers can often lead to theft, budget mistakes and customer dissatisfaction. Inventory methods that require employees to stay constantly in tune with the movement of the company and the importance of how inventory is handled generally result in more cost effective employees who are more responsible on the job. It may also be helpful to announce every inventory audit to the entire company so employees are aware of the company's emphasis on accurate accounting procedures. In addition, charging employees with keeping the inventory storage areas and the related paperwork paperwork organized not only keeps them constantly aware of the importance of inventory, but also can help speed up the process.


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Post 3

@mooser: This is especially important for retail inventory. Shrink can only be calculated so accurately if there are enough full product counts throughout the fiscal year.

Post 2

@narnia219 - I agree that physical audits are important. This is true even if the inventory software is highly effective. Software is only as effective as the people inputing the numbers, and there will always be some dishonest or sloppy workers out there. Physical audits are still a necessity, although software can reduce how frequently they are needed.

Post 1

I performed a physical inventory audit of an ice cream factory one time. We found ice cream the company did not even know they had and no one knew where it came from. This is another benefit of random physical audits perfomed by an independent party. It can bring to light any holes in the standardized process. It was very, very cold also!

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