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The physical inventory should be supervised and controlled by members of the business, Accounting and Operations management teams. The intent is to provide supporting guidelines to assist operating units in developing necessary activities to ensure that the procedure is understood and being followed. The procedures are not intended to address specific control activities applied by the business or statements of operating procedures. The following procedures are intended to assist the business in applying this procedure. ScopeĪccounts covered by this procedure include Raw Materials, Work in Process, Finished Goods, and Stores Inventory. The taking of a physical inventory must be properly supervised and controlled by the Accounting department.Īt least one physical inventory should be taken in close proximity to year-end and coordinated with the independent external auditors’ mutual agreement.

In the event a business elects to utilise cyclical counts in lieu of a complete inventory, the business is required to request and receive approval from the Accountant. Procedures should ensure that all physical inventory results are summarised, discrepancies are investigated, and necessary adjustments are recorded to adjust the balances on the Company’s records to reflect the results of the physical inventory.Ĭycle counts or other periodic verifications can be used in place of an inventory, as long as they provide for the counting of all groups of inventory at least once during the year. This procedure assures that one un-audited semi-annual and one audited annual physical inventory should be taken of raw materials, work in process, and finished goods. Maintaining adequate controls over inventory is important to ensure proper balance sheet valuation and recognition of cost of products sold.Īdditionally, a physical inventory provides the Company with an opportunity to maintain the accuracy of its perpetual inventory records Background uses various types of inventory in the course of its business. This purpose of this procedure is to provide guidance for and its subsidiaries regarding the need to take regular physical inventories of the Company’s raw material, work in process, finished goods, and stores inventories.