Documentary stocktaking

What it means

Documentary stocktaking is a way of verifying assets and liabilities that cannot be physically counted, measured or weighed. It covers receivables and payables, bank accounts, loans, accruals and deferrals, provisions, estimated items, intangible assets and financial investments. Their actual balance is established from documents.

The evidence consists of contracts, bank statements, balance confirmations from business partners, register extracts, expert valuations or internal calculations. From these the stocktaking committee or responsible person checks whether the balance in the books exists, is complete and is correctly valued.

It complements the physical count of tangible assets. Some items need both: goods in transit, for instance, cannot be counted, so their existence is verified from transport documents and confirmations from the carrier or warehouse.

How it works in practice

At year-end we carry out documentary stocktaking for every balance sheet item that cannot be counted. Bank accounts are compared with statements at 31 December, loans with the bank’s confirmation, receivables and payables with the sub-ledger and, for major partners, with a balance confirmation.

The result goes into the inventory list, signed by the responsible persons. Documentary stocktaking also includes a review of valuation: whether receivables are doubtful and need an impairment allowance, whether provisions match expected costs and whether estimated items agree with actual invoices.

For smaller companies we generate the list automatically from the books, and the client only adds missing confirmations. Although it is stocktaking “on paper”, it is a mandatory part of the year-end close and the first thing checked in an audit or tax inspection.

What to watch out for

The most common mistake is skipping documentary stocktaking because “everything is in the system”. The system only shows what has been booked. Without verification, an unrecorded loan, a forgotten liability or a receivable that long ago ceased to exist goes unnoticed, and the financial statements no longer give a true picture.

The second risk is a formal stocktake without reviewing valuation. A receivable from a customer in bankruptcy still exists on the list, but its value is different. Stocktaking differences and the necessary allowances must be booked in the year the stocktaking covers.