Your firm audits Clean Paints Ltd. and you are planning the audit of stock and work in progress for the year ended 31 December 2000. Clean Paints Ltd. determines the value of stock in its financial statements by the year -end stocktake. There is no perpetual Stock Inventory System though stock is counted quarterly for the purposes of management accounting.Stock and work in progress is held at the warehouse which is next to the company‘s factory.Required:State the areas that you will expect the client‘s stocktaking instructions to cover

Stock take instruction are issued to the staff undertaking the stock take to brief them on the procedures to be followed during the count. Definite instructions preferably in writing should be issued in all cases for the guidance of those who will be engaged in the actual stock taking. The instructions should contain:

a.The method of identification of the stock items and their ownership;
b.Counting, weighing or measuring.
c.Reporting of stocks which are damaged/defective.
d.The following issues should be addressed:

  • Stocktaking should be well planned and carried out systematically by persons who are fully informed of the duties involved;
  •  These persons should be familiar with the stock but supervisors should be from different departments;
  •  Counting should be done by at least two people, one to count and the other to check and record what has been counted;
  •  Stocks should be marked to facilitate counting and avoid double counting;
  •  The whole stock taking area should be divided into sections for control purposes and avoids double counting.
  • Ensure that properly qualified personnel are available where specialised knowledge is necessary to identify, quality and quantity of stock.
  • Cut off procedures should be performed i.e. dispatch documents for all goods belonging to customers and still held by client and those that have already passed to the customer. Such stock should be excluded from the stock take.
  •  Goods held in safe custody for others should not be recorded as part of the client‘s stock.
  • Arrangements to confirm the goods held for the company by outside parties should be made.
  •  There should be procedures to identify the slow moving and obsolete/damaged stock.
  •  There should be procedures for identification of the stage of completion of work in progress.

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