During the statutory audit of Nature Care Ltd., CA Vigilant has planned to attend the physical inventory count of the company. Nature Care Ltd. is…

The set of instructions and procedures given in the case scenario are incomplete and not properly followed, which are discussed as under: The physical inventory count process should be supervised by a responsible officer of the company, preferably from finance department. The supervision of the count process should not be done by person responsible for storage function. However, warehouse in-charge of each area should be present during inventory count process for co-ordination and facilitation.During inventory count process, inward and outward movement of goods should not be allowed as allowing such movement may distort the results or make it difficult to arrive at proper results.The instruction relating to the constitution of teams for counting process does not specify that counting shall be undertaken by members drawn from departments not connected with storage function. For example, these members may be from the finance department. Further, within each team, duties should be fixed separately for counting and recording on serially numbered count sheets. It is nowhere stated that once counting in an area is complete, certain distinctive marks or tags are required to be put.Count sheets should contain description of products in accordance with inventory records of company.The management's instructions are silent about how team members would proceed with their work. Team members should be provided with lay out plans for different sections/ storage areas so that all areas are covered.Powders in sacks should be counted bag by bag, using the standard weight per sack for calculation and quantities in drums should be measured using weighing or calibrated measuring devices, rather than assuming full drum capacity.WIP should be counted stage-wise, at each stage of production, rather than estimating for the entire plant as stage-wise counting ensures accurate reporting of partially completed inventory.Finished goods should be counted category-wise (HealFast, MediPlus, GlobalCare). Further, brand names and batch numbers should be verified to avoid misclassification.There is no instruction regarding damaged or obsolete stock items particularly in the case of finished goods. Damaged/obsolete inventories should be counted and shifted to a separate area for assessment of their condition and to prevent mix-up with other standard inventories.Count sheets need to be signed by each team member.The responsible officer should ensure that stocks have been counted/verified in all areas and distinctive marks are put to confirm completion of counting.