Reporting on Stocktaking

Management shall advise the executive team as quickly as possible of the results of all supervised stocktaking (including details of accounting action taken to record discrepancies). In most organizations, the report includes the following:

• The stockroom details
• The value of inventory per the stocktaking
• The value of inventory per the proper inventory form
• The shortage/overage
• The total stock movement/sales since the last stocktaking
• Any shrinkage recorded since the last stocktaking
• The results of the last two stocktakings
• A statement from the management that –
  • They are satisfied with the stocktaking results and that recommendations are accepted.
  • They are not satisfied with certain components and recommended portions be recounted.
  • They have no confidence in the stocktaking and require another stocktaking before they can endorse the financial statements as to the fairness and accuracy of stated values.

When satisfied that appropriate corrective action has been affected, the manager submits the report to the management board for approval, and, upon approval, informs the board of any losses, the probable causes and the corrective/preventive actions taken to prevent a recurrence. In instances where the shortage exceeds the management’s powers of a write-off, the board shall submit the report to shareholders for review. All the procedures are dependent upon organizational policies.

Note that management must be cautious in accepting stocktaking results that indicate overages. Overages are as serious as shortages are, if not more so. Overages at retail in excess of 0.5% of sales are considered abnormal.

The report submitted so far must state the shortage and the following information:

• The amount by which the shortage (at cost) exceeds the write-off authority of the management; and
• The details of any investigation and corrective action(s) taken.