Term
Stocktaking
Verification that the recorded assets and liabilities match reality. It is performed as at the closing date and results in a record explaining any differences found.
Updated
What it means
Stocktaking verifies that assets and liabilities in the books match reality. A physical count is done by counting and inspection; a documentary one by comparing the records against documents and third-party confirmations.
The Accounting Act requires it as at the annual closing date, and it produces a stocktake record: the differences found, their cause and how they were settled.
A count and a stocktake are not synonyms. The count is the act of establishing what is actually there, and it produces an inventory list. The stocktake also covers comparing that with the books, explaining the differences and posting them. A counted warehouse without this second step has not yet completed the stocktake.
How it works in practice
It covers not only inventory and fixed assets but cash, bank accounts, receivables and payables too. For receivables and payables it means agreeing balances with trading partners.
This is where the items needing an impairment allowance or a write-off usually surface: unsellable stock, an uncollectable receivable, an asset that no longer exists. Without a stocktake the accounts rest on system balances alone.
A company does not have to count its inventory on the last day of the year exactly. The law also allows a count within a certain period before or after the reporting date, provided the result is demonstrably rolled forward or back for movements up to that date. With clients who hold larger stocks we therefore plan the date in advance and do the roll-forward from the stock records, so the count does not clash with peak sales.
What to watch out for
Shortages and surpluses are not treated alike: a shortage above natural wastage is generally a non-deductible expense, and individual responsibility is settled with it. A desk-only stocktake is easy for an inspection to spot.
The person responsible for the assets should not carry out the count alone. If a storekeeper counts their own warehouse and nobody verifies the result, the figures are hard to defend. Where the employee has signed an agreement on material liability, the company will struggle to recover a shortage without a properly conducted count.
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