Stock Counts Go Virtual!

As we continue to navigate our way through lockdown, our audit team had the unprecedented challenge of performing Ecovis’ first ever virtual stock take. We'd like to share our experience and what we learned from our virtual stock take, as they may become the new normal.

COVID has changed many things, but the requirement for auditors to attend stock takes is not one of them! ISA 501 requires auditors to attend stock counts where stock is material, unless impractical, to provide audit evidence relating to existence and condition. Failure to attend a stock take is likely to lead to a modified opinion in the auditor’s report – something which understandably clients want to avoid. Doing a virtual stock take is one way around this.
 
It is important to consider the risks associated with a virtual stock take. ICAEW gives the following examples of risks/limitations:

  • Hard to assess if stock is damaged/obsolete.
  • Difficult to obtain evidence regarding completeness – doing the count virtually increases the risks that there is hidden stock items out of frame.
  • Risk that footage could be manipulated.
  • Need to consider how to select samples for testing, and whether to increase the sample size to reflect the increased risk.
  • Take into account how stock is measured - for instance stock measured by length or weight may be harder to count on video.

Overall, whilst there were some challenges in terms of the tech and time taken, it went smoothly and the client was very happy.  We intend to replicate things this week for another of their stock locations.
 
For anyone planning on doing a virtual stock take in the future here are our top tips:

  • Do a test run beforehand – plan carefully and check that the tech is working correctly.
  • If possible, use people with prior experience of doing the physical stock take as they will be familiar with layout, stock and staff. 
  • Maintain professional scepticism – for instance, ask to open boxes to see items inside, don’t just take their word for it.  You cannot feel the weight of a box virtually!
  • Consider increasing the sample size or extending the sample if errors are found.
  • Have two people on the call so you can document all detail and ask questions.
  • Ensure camera is facing stock rather than in selfie mode so you can prevent manipulation and assess condition of stock.
  • Select the sheet to floor sample beforehand and circulate just before meeting so client is prepared