Physical verification and count
Full counts or test counts at each location, with count sheets, tagging and cut-off checks, attended by our team.
Stock & Inventory Audit in Kochi, Kerala
T K Chandy & Associates carries out stock and inventory audits in Kochi and across Kerala. We count and verify stock at your warehouses, shops and plants, test valuation under AS 2 or Ind AS 2, reconcile physical stock with your books and ERP, flag slow-moving and obsolete items, and check the stock statements you file with your bank for drawing power.
- Led by a chartered accountant since 1994
- Member of SGA World International
- Kakkanad, Kochi
At a glance
Stock audit at a glance
- Who needs it: Traders, distributors, manufacturers, retailers and contractors holding material stock, and businesses whose bank lends against stock and debtors.
- What we check: Existence (physical count), ownership, condition and valuation of stock, and whether it agrees with your books, ERP and bank stock statements.
- What you receive: A signed stock audit report with count sheets, a book-to-physical reconciliation, a valuation review and a list of slow-moving and obsolete items.
- When to do it: At the financial year end for the statutory audit, on a bank or lender's request, before a sale or takeover, or periodically to control shrinkage.
For most trading and manufacturing businesses, inventory is the largest asset on the balance sheet and the one most easily misstated. Stock that is in the books but not in the godown, stock valued at cost when it can only be sold at a loss, and stock statements to the bank that do not match the ledgers all lead to wrong profits, qualified audit reports and difficult conversations with lenders.
A stock and inventory audit is an independent check of what you actually hold. At T K Chandy & Associates, our chartered accountants in Kakkanad plan and observe stock counts, test count accuracy, verify valuation under the accounting standards and reconcile the results with your books. We do this for year-end statutory audits, for bank-mandated stock audits and as a standalone management review, at locations in Kochi and across Kerala.
Inventory audit services
Who Uses Our Stock Audit Services in Kochi?
We work with businesses across Ernakulam and Kerala that carry goods, raw materials or work in progress. Each engagement is led by a chartered accountant who signs the report and attends the key counts.
- Wholesalers and distributors with godowns in Kochi, Aluva, Angamaly and other towns
- Manufacturers with raw materials, work in progress and finished goods
- Retail chains with multiple outlets and a central warehouse
- Exporters of seafood, spices, coir and other Kerala produce
- Construction and project companies with materials at sites
- Borrowers whose cash credit or overdraft is secured on stock and book debts
What the engagement covers
What Does Our Inventory Audit Include?
Valuation under AS 2 / Ind AS 2
A check that stock is valued at the lower of cost and net realisable value, using a permitted cost formula applied consistently.
Book-to-physical reconciliation
Physical results matched with the stock ledger, ERP and general ledger, with every material difference traced and explained.
Slow-moving and obsolete stock
Ageing analysis, damaged and expired items identified, and a recommended write-down where net realisable value has fallen below cost.
Bank stock statement review
Stock and debtor statements filed with your bank checked against the books, with the drawing power recomputed on the bank's margins.
CARO 2020 inventory reporting
Evidence for the statutory auditor's reporting under clause 3(ii) on physical verification, discrepancies and quarterly returns to lenders.
Accounting standards
How Is Inventory Valued Under AS 2 and Ind AS 2?
Companies that follow Ind AS apply Ind AS 2; other entities apply AS 2 issued by ICAI. The core rules are the same:
| Question | AS 2 / Ind AS 2 position |
|---|---|
| Basic measurement rule | Lower of cost and net realisable value (NRV) |
| What goes into cost | Purchase price, non-refundable taxes, freight and handling, and conversion costs including a systematic share of production overheads |
| What is left out of cost | Abnormal wastage, most storage costs, administrative overheads and selling costs |
| Permitted cost formulas | FIFO or weighted average; specific identification for items that are not interchangeable |
| Is LIFO allowed? | No |
| Can GST input tax credit be included in cost? | No, where the credit is available, it is not part of cost |
| Write-down to NRV | Item by item or by groups of similar items, not on the total stock |
NRV is the estimated selling price less the estimated costs to complete and sell. Old, damaged or slow-moving stock is where NRV most often falls below cost.
Our process
How Does a Stock Audit Work With Us?
Step01
Scope and planning
We agree the locations, cut-off date, stock categories and the purpose of the audit (year end, bank, management or transaction), and fix the count timetable.
Step02
Count instructions and cut-off
We review your count procedure, freeze movements or record them separately, and note the last goods inward, outward and production documents.
Step03
Physical verification
Our team observes or carries out the counts, performs test counts in both directions (sheet to floor and floor to sheet) and records damaged or idle items.
Step04
Reconciliation and valuation
We reconcile the count with the books, roll forward or back to the balance sheet date if needed, and test cost and NRV on a sample of items.
Step05
Report and follow-up
We issue a signed report with differences, valuation findings, slow-moving lists and control recommendations, and discuss adjustments with management.
CARO 2020 clause 3(ii)
What Does the Statutory Auditor Report on Inventory Under CARO 2020?
For companies covered by the Companies (Auditor's Report) Order, 2020, the auditor reports on these inventory matters. A well-documented stock count makes each one straightforward:
Physical verification – clause 3(ii)(a)
Whether management verified inventory at reasonable intervals and whether coverage and procedure were appropriate
Discrepancies of 10% or more
Whether discrepancies of 10% or more in aggregate for each class of inventory were noticed and properly dealt with in the books
Working capital above ₹5 crore – clause 3(ii)(b)
Where sanctioned working capital limits exceed ₹5 crore in aggregate, secured on current assets, whether quarterly returns to banks agree with the books
Stock with third parties
Goods held by job workers, consignees or in transit need confirmations or separate verification
CARO 2020 does not apply to small companies, one person companies, banking, insurance and section 8 companies, or to some smaller private companies. See our statutory audit page for the full exemptions.
Be audit-ready
What Documents Should You Prepare for a Stock Audit?
Having these ready before the count keeps the audit short and the results reliable:
- Item-wise stock register or ERP stock report
- List of locations, godowns and stock with third parties
- Goods received notes and purchase invoices
- Delivery challans and sales invoices around cut-off
- Production, issue and consumption records
- Previous count sheets and reconciliations
- Costing sheets and overhead absorption working
- Recent selling price lists for NRV testing
- Stock ageing report
- Monthly stock statements filed with the bank
- Bank sanction letter with margins and drawing power terms
- Job work and consignment records with confirmations
Bank stock audits
How Do Stock Statements Affect Your Bank Drawing Power?
If your cash credit or overdraft is secured on stock and book debts, the bank lets you draw only up to the drawing power worked out from the stock statements you submit, usually monthly or quarterly. In simple terms, the bank takes eligible stock and receivables, deducts unpaid creditors where the sanction requires it, and applies the agreed margin. If the statements overstate stock, you are drawing more than you are entitled to; if they understate it, you are leaving limits unused.
Banks often appoint an independent stock auditor to check these statements, and the statutory auditor reports on whether quarterly returns agree with the books under CARO 2020. We help on both sides: we can check your statements before they go to the bank, reconcile them with the ledgers, and prepare for the lender's own stock audit so that differences are explained before they become a finding. For loan proposals and CMA data, see our project reports and CMA service.
Worked example
Example: Year-End Stock Count for an Ernakulam Distributor
A building-materials distributor with a main godown in Edappally and two smaller godowns near Aluva and Perumbavoor carried about ₹3.6 crore of stock and had a cash credit limit secured on stock and debtors.
- We planned a count on 31 March across all three godowns on the same day, with movements frozen after the last delivery challan.
- Test counts showed that damaged and expired stock of adhesives and sealants was still carried at full cost, and that goods sent to two sub-dealers on approval had been counted as sold.
- The book-to-physical reconciliation left an unexplained shortage of about 1.5% of value, traced mainly to issues that had not been entered in the ERP.
- The monthly stock statement filed with the bank for March had been prepared from an older report and overstated stock compared with the books.
Management wrote down the damaged items to NRV, corrected the cut-off and ERP entries, and filed a revised statement with the bank. The statutory auditor relied on our count and reconciliation, and the company introduced monthly cycle counts for fast-moving items.
Fees and timing
How Much Does a Stock Audit Cost in Kochi?
There is no fixed scale. The fee depends on the number of locations and how far they are from Kochi, the number of items (SKUs) and how they are stored, whether we carry out the count or observe yours, whether work in progress and costing need review, the condition of your stock records, and whether the report is for management, the statutory audit or a bank. A single godown with a clean ERP can be covered in a day or two; multi-location manufacturers need a planned programme over several days. We quote a fixed fee in writing after reviewing your stock report and location list.
Common findings
What Problems Does a Stock Audit Usually Find?
- Cut-off errors around the year end
- Sales or purchases recorded in one year and the stock movement in another, which misstates profit
- Stock valued at cost when NRV is lower
- Profit and the balance sheet are overstated; the auditor may need to qualify the report
- Unrecorded issues and returns
- Book stock drifts away from physical stock and shortages are found only at year end
- Stock with job workers or consignees not confirmed
- Ownership and existence cannot be proved without confirmations or visits
- Bank stock statements not matching the books
- Drawing power is misstated and lenders may raise it in their own stock audit or review
- No ageing or obsolescence review
- Dead stock builds up and working capital is locked in items that will not sell
Why T K Chandy & Associates
Why Choose Us for Inventory Audit in Kochi?
CA-led since 1994
Engagements are planned and the report is signed by an experienced chartered accountant, who also attends the key counts.
Based in Kakkanad
Easy access to warehouses and industrial areas across Ernakulam, and planned visits to locations elsewhere in Kerala.
Counts on your cut-off date
We schedule year-end and bank counts around your closing date, holidays and peak dispatch days.
Linked to your statutory audit
Count work documented so the statutory auditor and tax auditor can rely on it, avoiding duplicate visits.
Comfortable with your ERP
We work with stock reports from your accounting or ERP system as well as manual stock registers.
Independent and confidential
Counts and findings reported objectively under ICAI ethics, with your pricing and supplier data kept secure.
Related services
Which Other Services Work With a Stock Audit?
Statutory audit
Annual audit under the Companies Act, including CARO 2020 inventory reporting.
Internal audit
Periodic reviews of purchase, stores and dispatch controls between year ends.
Bank audit
Audit assignments for banks and lenders, including borrower reviews.
Project reports & CMA
CMA data and projections for working capital limits and renewals.
Accounts outsourcing
Stock and cost records kept up to date and reconciled every month.
IT & systems audit
Review of your ERP inventory module, controls and audit trail.
Get a quote
Request a stock audit quote
Tell us your business type, the number of locations, approximate stock value and your count date, and whether the audit is for a bank. We will reply with the scope, timetable and a fixed fee.
Prefer to talk now? Call +91 484 354 1530 or email [email protected].
Who prepared this page
Written and reviewed by chartered accountants at T K Chandy & Associates
This page is prepared by the audit and tax team at our Kakkanad, Kochi office and checked against the Companies Act, the Income-tax Act, GST law and ICAI standards. It is reviewed whenever the rules change.
- Last reviewed 29 October 2026
- Led by T K Chandy Vaidyan, chartered accountant since 1994
- Member of SGA World International
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Ask an expertFrequently asked questions
Stock and inventory audit in Kochi – frequently asked questions
Short answers to the questions clients in Kochi ask us most. Still unsure?
Talk to our team01.What is a stock audit?
A stock audit is an independent check of the inventory a business holds. The auditor verifies that the stock physically exists, belongs to the business, is in usable condition and is valued correctly, and reconciles it with the books and any stock statements given to lenders.
02.What is the difference between a stock audit and a statutory audit?
A statutory audit gives an opinion on the full financial statements of a company. A stock audit focuses only on inventory, in more depth. The statutory auditor often relies on a well-documented stock count, and a stock audit can be done at any time, not just at the year end.
03.Is a stock audit mandatory?
There is no general law requiring a separate stock audit. However, the statutory auditor must obtain evidence on inventory, CARO 2020 requires reporting on physical verification for covered companies, and banks commonly require stock audits for borrowers whose limits are secured on stock.
04.Why does my bank want a stock audit?
When working capital limits are secured on stock and book debts, the bank needs assurance that the stock statements you submit are accurate and that the drawing power is correctly worked out. An independent stock audit gives the bank that assurance.
05.How is drawing power calculated?
Drawing power is broadly the value of eligible stock and receivables, less creditors where the sanction requires it, after deducting the margin set by the bank. The exact method is in your sanction letter, so we always work from the bank's own terms.
06.How is closing stock valued under AS 2?
Stock is valued at the lower of cost and net realisable value. Cost includes purchase, conversion and other costs to bring the goods to their present location and condition, using FIFO or weighted average. Ind AS 2 applies the same principle for Ind AS companies.
07.What does CARO 2020 require on inventory?
Clause 3(ii) requires the auditor to report whether physical verification was done at reasonable intervals with appropriate coverage, whether discrepancies of 10% or more for any class were noticed and dealt with, and, where secured working capital limits exceed ₹5 crore, whether quarterly returns to banks agree with the books.
08.What is slow-moving and obsolete stock?
Slow-moving stock is stock that has not moved for a long period compared with normal turnover; obsolete stock is stock that can no longer be sold or used at normal value. Both often need to be written down to net realisable value.
09.Can you verify stock at our branches outside Kochi?
Yes. We plan counts at locations across Kerala, and for distant branches we can combine our attendance with management counts and test checks so that all locations are covered for the same cut-off date.
10.Can a stock count be done on a date other than 31 March?
Yes. The count can be done a few days before or after the year end, and the results rolled forward or back to the balance sheet date using the movement records for the intervening days.
11.How long does a stock audit take?
A single location with a good ERP report can usually be counted and reconciled within a few days. Multi-location businesses and manufacturers with work in progress need a planned programme, typically one to three weeks including the report.
12.What happens if the stock audit finds a shortage?
We trace the difference through issues, returns, cut-off and recording errors. Any unexplained difference is adjusted in the books after management approval, and we recommend controls such as cycle counts to prevent it recurring.
References:ICAI – Accounting Standards (AS 2 Valuation of Inventories) · Ministry of Corporate Affairs – Ind AS and CARO 2020 · Companies Act 2013 (India Code) · Reserve Bank of India — reviewed 29 October 2026