Most enterprises consider stocktaking a necessary evil – another formality, which additionally causes stress, fear, and concerns about the effects it will bring. That couldn't be further from the truth! Stocktaking and all audit activities carried out during stocktaking are more than an onerous responsibility. In fact, stocktaking is an opportunity to reliably present the activities of the company and to establish the actual financial condition of the enterprise. However, how to proceed if stocktaking shows differences between the actual quantity and the recorded quantity?

Stocktake discrepancies – why do they arise and how to account for them?

Discrepancies between the actual stock levels and the recorded data, found during stocktaking, are quite a common occurrence. There may be various causes of such discrepancies, from simple mistakes made while handling inbound or outbound goods to damage to even theft. 

Therefore, it essential to carefully investigate the causes of the discrepancies discovered during stocktaking, to minimise the risk of their future occurrence.

Auditors can take advantage of their experience and help the audited entities to identify potential weak points of the stocktaking and result-evaluation processes.

Stocktake discrepancy report – what is it and what should it contain?

If any discrepancies are found between the actual quantity and the recorded quantity, it is necessary to find the cause of and account for (with determining the method of accounting beforehand) any inventory deficit or surplus. The body which prepares the stocktake discrepancy report, after finding the cause of the discrepancies, is the stocktaking committee. The committee must remember that stocktaking results must be properly documented.

The stocktake discrepancy report is an essential document for the conclusion of the stocktaking process, as it constitutes a breakdown of stocktake discrepancies. In accordance with the Comments of the Polish Accounting Standards Committee, a stocktake discrepancy report must contain:

1. reasonable conclusions concerning the method of accounting for inventory surplus or deficit;
2. a breakdown of quantitative or qualitative discrepancies or a collective statement of discrepancies, which indicate in detail where the discrepancies have occurred.

Properly addressing stocktake discrepancies will help to clarify and adjust the discovered discrepancies in the accounting records and is crucial for preparing financial statements which will show a true and fair view of the financial situation of the enterprise. 

There is no way forward without the approved report

The conclusions of the committee included in the stocktake discrepancy report are approved by the manager of the entity. Only after the report is approved, the accountant adjusts the discrepancies in the records.

Lack of approval of the report by the manager of the entity is a serious shortcoming which will certainly attract the auditor's attention. The same is true for lack of a clear specification of adjustments of inventory surplus or deficit, which should be documented both for audit and tax purposes.

Fixed assets must also be counted

Stocktaking does not cover only what is "here and now", i.e. inventory. The Polish Accounting Act imposes on entities the obligation to carry out stocktaking of other assets, including physical count of fixed assets. This process does not have to take place every year (it is required once every four years for fixed assets), but it must be remembered that stocktaking by physical count is particularly important. Stocktaking by physical count consists in counting and comparing the quantity with the data in the records and in finding the cause of and accounting for potential discrepancies.

The auditor – a partner in staying on top of stocktaking

Effective management of the assets of the enterprise, including proper stocktaking and evaluating its results, is a foundation of accurate financial reporting. Thanks to a careful analysis and identification of areas of improvement, the auditor who takes part in stocktaking contributes to better performance and risk management. This translates to increased confidence of investors, business partners, and other stakeholders.

By making sure that stocktaking is carried out in an orderly manner and is properly documented and accounted for, the representative of the audit firm helps companies to avoid potential problems and prepare accurate financial statements that are in compliance with the regulations.

So, rather than treating audit as an unnecessary duty, it is better to look at it as a chance for improvement. As an investment in the security and future growth of the company. A "navigator" on board who will help you to safely reach the destination and support you in successful completion of stocktaking activities is a great asset.