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Why a Chartered Engineer Certificate Is Crucial for EPCG License Compliance

Most exporters figure out the EPCG scheme when the bank or their customs agent mentions it. Zero duty on capital goods sounds attractive. The paperwork that comes with it, less so.

The Chartered Engineer certificate is one document that trips up a surprising number of EPCG applicants — not because it's complicated in itself, but because people underestimate what it's actually certifying, who needs to sign it, and what happens if it's wrong. A deficiency letter from the Regional Authority (RA) of DGFT because of a flawed nexus certificate can delay your authorisation by weeks. A rejected installation certificate means your six-month submission deadline starts looking very close.

This article covers what the CE certificate covers in the EPCG context, where it's mandatory, what the engineer actually checks, and what to look for when choosing one — particularly if you're based in Delhi NCR where both DGFT offices and manufacturing exporters are concentrated.

The EPCG Scheme — A Quick Context

The Export Promotion Capital Goods (EPCG) scheme allows manufacturers and service exporters to import capital goods — machinery, equipment, spares, tools — at zero customs duty. The condition is a specific export obligation: exports equal to six times the duty saved, fulfilled within six years from the authorisation date.

Under FTP 2023, the scheme also covers green technology equipment, and DGFT has introduced automated approvals for straightforward cases. But the core compliance requirements haven't changed — and the CE certificate sits at two critical points in the process.

Where the Chartered Engineer Certificate Is Mandatory Under EPCG

There are two distinct stages where DGFT requires a certificate from an independent Chartered Engineer. Missing either one — or getting either one wrong — creates compliance risk.

1. The Nexus Certificate — Appendix 5A (At Application Stage)

When you apply for an EPCG authorisation in Form ANF 5A, you must attach a nexus certificate from an independent Chartered Engineer in the format prescribed under Appendix 5A of the DGFT Handbook of Procedures.

This certificate does one specific thing: it establishes the technical connection — the nexus — between the capital goods you want to import and the export product or service your business produces. The RA at DGFT will not issue the EPCG authorisation without this certificate.

The Appendix 5A format requires the Chartered Engineer to confirm:

The name, model, technical description, and quantity of each capital good proposed for import

That the capital good is required for pre-production, production, or post-production of the specified export product or service

How the machinery links to the export product — its role in the manufacturing or service delivery process

Anticipated wastage at the time of installation, if any, and that the wastage is reasonable

That the engineer has the necessary competence in the relevant domain to issue this certificate

That last point was formalised by DGFT via a specific public notice: the Chartered Engineer must act only within the domain of their own competence. A mechanical engineer cannot certify electronics manufacturing equipment. A civil engineer cannot sign off on chemical processing machinery. The domain specificity is explicit in DGFT guidelines.

2. The Installation Certificate — Post-Import (Within 6 Months)

Once capital goods are imported under the EPCG authorisation and installed at the factory premises, the authorisation holder must submit an installation certificate within six months from the date of completion of import. This can be obtained from either the jurisdictional Customs Authority or an independent Chartered Engineer — at the option of the authorisation holder.

Most exporters take the independent CE route. It's faster, doesn't require coordinating with Customs, and gives you more control over timing. The CE visits the factory, physically verifies the installed machinery against the Bill of Entry and the EPCG authorisation details, and issues the certificate on their own letterhead.

⚠  Missing the six-month installation certificate deadline is one of the most common compliance failures under EPCG. Late submission attracts a ₹5,000 penalty, and DGFT verifies installation certificates on a random basis. If capital goods are found not installed at the premises mentioned in the authorisation, the duty exemption can be challenged.

A fresh installation certificate is also required if you ever shift machinery from one factory unit to another — and this shift is only permitted if the new address is listed in your IEC and RCMC.

What Happens When the CE Certificate Has Problems

The Chartered Engineer certificate isn't just a formality — it's the technical foundation of the entire EPCG authorisation. A weak or incorrect nexus certificate creates problems throughout the licence lifecycle.

At Application Stage

DGFT RA issues a deficiency letter — the authorisation is put on hold until a corrected certificate is submitted

This delays authorisation issuance, which pushes back your import timeline — the import validity period is 24 months from authorisation date with no revalidation

A poorly established nexus can create complications at the export obligation discharge stage, even if the application was initially accepted

At Export Obligation Discharge (EODC) Stage

When you apply for the Export Obligation Discharge Certificate in Form ANF 5B, DGFT reviews the original nexus certificate. If the exported goods don't clearly match what the CE certified as the export product at application stage, the RA may ask questions. In some situations, an amendment to the authorisation is needed — which itself requires a fresh nexus certificate from a Chartered Engineer.

The Financial Stakes

The penalty structure under EPCG is worth understanding before treating certification quality as a minor concern.

Export obligation not fulfilled within 6 years: Full customs duty saved plus 15% interest per annum payable to Customs.

AEO (Average Export Obligation) shortfall in any year: Customs duty plus 15% annual interest on the shortfall amount.

SEO (Specific Export Obligation) shortfall after completing AEO: Proportionate duty saved plus 15% annual interest.

Machinery found not installed at licensed premises: Duty exemption challenged; confiscation risk under Customs Act, 1962.

Installation certificate not submitted within 6 months: ₹5,000 penalty; DGFT compliance flag on the authorisation.

CE certificate issued by engineer outside their domain: Authorisation validity can be challenged; nexus disputed at EODC stage.

The 15% annual interest rate adds up fast. On a duty saving of even ₹50 lakh, the interest alone can cross ₹45 lakh over six years if the export obligation isn't met. Getting the nexus certificate right from the start isn't about paperwork — it's about protecting that duty saving.

What a Chartered Engineer Actually Does During the EPCG Assessment

Many exporters assume the CE just signs a paper based on what the company tells them. A proper assessment involves real technical work — and the quality of that work matters.

For the Nexus Certificate

Reviews the pro forma invoice or technical specifications of the machinery to be imported

Visits or reviews the existing manufacturing setup to understand the production process

Technically establishes how the imported machinery will be used — at which stage of production, for which export product

Assesses and certifies the wastage percentage at installation, if applicable

Confirms the technical description of the machinery matches what the importer has described to DGFT

Signs and stamps each page of the certificate — Appendix 5A format requires page-by-page attestation

For the Installation Certificate

Physically visits the factory premises specified in the EPCG authorisation

Cross-verifies the installed machinery against the Bill of Entry details — make, model, serial numbers

Confirms the machinery is operational and located at the licensed address

Issues the certificate on their own letterhead — not on the company's letterhead

A copy must also be forwarded to the Customs Authority for their records

A CE who simply takes the company's word on serial numbers and signs off creates a certificate that won't hold up to a random DGFT verification. Customs and DGFT offices have seen enough paper-signing to know the difference.

Choosing the Right Chartered Engineer for Your EPCG Work

Not every Chartered Engineer registered with the Institution of Engineers (India) is the right person for EPCG certification. A few things genuinely matter when choosing one:

Domain competence that matches your machinery. DGFT guidelines explicitly require the CE to certify only within their domain of competence. An engineer from the wrong field gives you an invalid certificate.

Familiarity with Appendix 5A format specifically. The nexus certificate has a prescribed format with specific certifications required. An engineer unfamiliar with DGFT formats may miss required declarations — which triggers a deficiency letter.

EPCG-specific experience, not just general valuation or inspection work. General inspection experience doesn't substitute for knowing what DGFT Regional Authorities actually look for in nexus certificates at the time of processing and later at EODC.

Willingness to conduct an actual site assessment. A CE who issues certificates without visiting your facility or reviewing pro forma invoices is not providing a credible certificate. DGFT verifies on a random basis.

Current IEI registration. Chartered Engineers in India must be registered with the Institution of Engineers (India). Verify this before engagement.

Turnaround time relative to your import window. Import validity under EPCG is 24 months from the authorisation date with no revalidation. Delays in getting the nexus certificate directly affect how much of that window you can use.

Chartered Engineer Service Providers in Delhi — What to Know

Delhi NCR is one of the busiest corridors for EPCG applications in India. Manufacturing clusters in Gurgaon, Faridabad, Noida, Ghaziabad, and the Okhla and Wazirpur industrial areas generate a significant volume of EPCG authorisations. The DGFT Regional Authority offices in Delhi handle a large share of these.

For exporters looking for chartered engineer service providers in Delhi, a few practical observations from how EPCG certification actually works in the NCR market:

The better-established CE service providers in Delhi typically have engineers across multiple domains — mechanical, electrical, civil, chemical — so the domain-matching requirement can be met in-house. Smaller solo practitioners may not have this range.

Proximity to your factory matters, especially for the installation certificate. A CE based in Okhla travelling to certify machinery in Faridabad or Manesar adds travel time to the turnaround — factor this into your six-month window.

For manufacturing sectors common in Delhi NCR — garments, auto components, electronics, pharma, food processing — the CE needs sector-specific experience, not just generic machinery knowledge. The nexus between machinery and export product varies significantly by industry.

Some CE firms in Delhi also assist with broader EPCG compliance — tracking export obligation deadlines, preparing amendment applications, and handling deficiency responses. This end-to-end familiarity can be useful if you're managing multiple EPCG licences simultaneously.

Sapient Services, based in Okhla, New Delhi, provides Chartered Engineer certificates for EPCG nexus certification and installation certificates across Delhi NCR and pan-India for larger assignments. Our team covers mechanical, industrial, and infrastructure domains.

Common Mistakes Exporters Make with the CE Certificate Under EPCG

These come up repeatedly in deficiency letters and EODC complications:

Getting the nexus certificate signed by a CE who isn't in the relevant domain — it looks fine on paper but gets flagged when the RA checks engineer credentials

Describing the export product too broadly — 'engineering goods' when the authorisation needs to specify the exact product line

Importing machinery not listed in the nexus certificate — any addition or deletion to the import list requires a fresh nexus certificate from a Chartered Engineer

Missing the 6-month installation certificate deadline and assuming a small penalty is the only consequence — late installation certificates can complicate EODC processing significantly

Using a CE who issues the certificate on the company's letterhead instead of their own — this violates the format requirement and can invalidate the certificate

Shifting machinery to a different factory unit without submitting a fresh installation certificate — this is one of the most consistently penalised violations under EPCG monitoring

Treating the nexus certificate as a one-time requirement — if you amend your authorisation to add export products, you need a fresh nexus certificate establishing the connection to those products

Getting This Right from the Start

The EPCG scheme is a genuine financial benefit — duty savings on capital goods can be substantial, particularly for manufacturers importing high-value machinery. But the scheme only delivers that benefit cleanly when the compliance chain is managed properly from the nexus certificate through to EODC.

The Chartered Engineer certificate is the first link in that chain. Getting it issued correctly — by the right person, in the right format, with a genuine technical assessment — is not a detail. It's the foundation the entire EPCG authorisation sits on.

If you're preparing an EPCG application or due for an installation certificate submission in Delhi NCR, it's worth a brief consultation with a CE who is specifically experienced in EPCG certification work — before you submit, not after a deficiency letter arrives.

For Chartered Engineer certificates for EPCG in Delhi, contact Sapient Services Pvt. Ltd. — Sapient House S-15, Pocket S, Okhla Phase II, New Delhi 110020.

Key Takeaways

Nexus certificate (Appendix 5A) is mandatory at EPCG application stage. Issued by an independent Chartered Engineer only — in DGFT prescribed format on the engineer's own letterhead.

CE domain requirement — the engineer must certify only within their domain of competence. DGFT made this explicit in a public notice amending the Handbook of Procedures. Wrong domain means an invalid certificate.

Installation certificate is required within 6 months of import completion. It can be from a CE or Jurisdictional Customs — the CE route is generally faster and more practical.

Amendments to the authorisation — any change to the import or export item list requires a fresh nexus certificate from a Chartered Engineer.

Penalty for non-fulfilment — full customs duty saved plus 15% per annum interest if export obligation is not met. Machinery can be confiscated under Customs Act, 1962 if found outside licensed premises.

Choosing a CE in Delhi — match the engineer's domain to your machinery type. Verify IEI registration. Look for EPCG-specific experience, not just general valuation or inspection work.

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How to Conduct a Stock Audit: A Complete Practical Guide for Indian Businesses

What Is a Stock Audit — And Why Should You Care?

Most business owners think of a stock audit as something the bank forces on them once a year. Sign the papers, let the CA team in, count the goods, done. That's one way to look at it. The other way — the smarter way — is to see it as one of the most useful financial health checks your business can run.

A stock audit, also known as an inventory audit, is the physical verification of quantities and conditions of items held in a warehouse. The reason behind this check is to know the position of existing stock — independently verified against what the books say.

In plain terms: your system says you have 500 units of a product. The stock audit tells you how many you actually have, in what condition, and whether that number is honest. Any gap between the two is a problem that needs investigating — whether it's due to theft, damage, data entry errors, or something worse.

The main purpose of conducting this activity is to rule out the difference in book stock and physical stock by passing adjustment entries. For businesses with high-value inventory, multiple warehouses, or working capital loans from banks — that difference can be the difference between a clean audit and a financial red flag.

Who Is Required to Conduct a Stock Audit in India?

This is where most businesses get confused. The short answer is: more companies than you think.

A stock audit in India is essential for different types of organisations that have significant working capital invested in inventory. It helps to reconcile physical stocks with the stock recorded in the books of accounts. Any discrepancy needs to be investigated, as it might be due to damage, theft, or operational reasons.

From a regulatory standpoint, the Companies (Auditor's Report) Order, 2020 — CARO 2020 — issued by the Ministry of Corporate Affairs under Section 143(11) of the Companies Act, 2013 — is the primary framework. The stock verification is carried out as prescribed under CARO 2020. For private companies, CARO applies when gross receipts or revenue exceed Rs 10 crore, paid-up share capital plus reserves exceed Rs 1 crore, or the company is a holding or subsidiary of a public company, or borrowings exceed Rs 1 crore throughout the financial year.

CARO 2020 requires auditors to report whether the frequency of physical verification is adequate, whether the coverage and procedure of physical verification of inventory is appropriate, and whether any discrepancies of 10% or more noticed in aggregate in each class of inventory have been properly dealt with in the books of accounts.

Beyond CARO, there's the banking trigger. Banks appoint chartered accounting firms regularly to conduct stock audits, significantly when the exposure exceeds the predetermined threshold limit — typically over Rs 1 crore — to verify the authenticity and accuracy of stock statements submitted by borrowers. Borrowers from banks and financial institutions are subject to audits, as the RBI mandates periodic stock verification for credit facilities exceeding prescribed limits.

So whether you're a mid-size manufacturer, a distributor with working capital facilities, or a retail chain with multiple locations — stock auditing is not optional. It's expected.

Types of Stock Audits You Should Know About

Not all inventory verification exercises are the same. The type you need depends on your business, your obligation, and who's asking for it.

A statutory stock audit is mandated under CARO 2020 for eligible companies. The statutory auditor comments on whether physical verification was conducted at reasonable intervals and whether discrepancies were handled properly. This is the compliance-driven version.

A bank stock audit or concurrent stock audit is ordered by the lender. One of the crucial tools for the bank's credit monitoring is the stock audit performed by an outside CA firm. In addition to ensuring the security is realisable, it aids the bank in reprimanding the borrower or may serve as a warning indication for potential future NPA. It helps the bank take prompt corrective action to prevent substantial future losses.

An internal stock audit is conducted at management's request — not driven by any external regulation — to plug operational gaps, track shrinkage, or prepare for a major system migration or ERP upgrade.

A forensic inventory audit goes deeper, typically triggered by suspected fraud, pilferage, or a major unexplained variance. It involves more rigorous documentation, chain of custody checks, and often a legal dimension.

Many MSMEs conduct stock audits due to management requirements rather than regulatory requirements — and that's actually a sign of a well-run business, not just compliance pressure.

Step-by-Step: How to Conduct a Stock Audit

Here's how a proper stock audit actually works on the ground. Not theory — practical sequence.

Step 1: Pre-Audit Planning and Scope Definition

Before anyone walks into a warehouse, the scope needs to be clear. What locations are being covered? Which categories of stock — raw materials, work-in-progress, finished goods, consumables, traded goods? What time period does the audit cover?

Plan the audit during a period with minimal stock movement to avoid discrepancies. Communicate the audit plan to the client, including timelines and resource requirements. A CA auditing a wholesale distributor may schedule the audit after month-end reconciliations to ensure accurate closing balances.

The auditor also collects preliminary documents at this stage — the company's stock register, inventory software reports, last month's stock statement (especially for bank borrowers), purchase orders, GRNs (Goods Receipt Notes), and any previous audit findings. If the client uses SAP, Tally, or any ERP, extract inventory data before the physical count begins.

Step 2: Understanding Internal Controls

Before counting a single unit, a good auditor spends time understanding how the company actually manages its inventory. Evaluation of internal control is the first key aspect per ICAI's Guidance Note on Stock Audit — covering separation of inappropriate or conflicting functions, adoption of standard methods to record stock movement, and cross-checking data generated by various departments.

Who authorises stock issues? Who receives materials? Are these the same person? That's a segregation of duties problem right there. Does the company maintain bin cards? Are GRNs matched to purchase orders before entry? Are gate registers maintained for inward and outward movement?

Weak controls at this stage often predict where discrepancies will show up during the physical count.

Step 3: Physical Verification — The Actual Count

This is the core of the exercise. The audit team physically counts, weighs, or measures every item within scope. Perform the physical count systematically by categorising inventory based on product type, location, or value.

Two techniques are commonly used here. Floor-to-sheet means you physically locate items in the warehouse and then check whether they're recorded in the books. Sheet-to-floor means you start from the book records and locate them physically. Both have their place — running both together gives the most complete picture and catches different types of discrepancies.

Ideally, there should be no movement of stocks when physical verification is being carried out. On occasions, however, it may be necessary for the entity to continue production, receiving, or dispatch operations during physical verification. In such circumstances, it is essential that the entity has procedures to identify and record such movements.

During the physical count, the auditor must also assess condition — not just quantity. While auditing a pharmaceutical company, a CA might flag expired medicines for write-offs. Infracon Similarly, in manufacturing, slow-moving, damaged, or obsolete raw materials should be separately identified and flagged for potential write-down.

Step 4: Cut-off Analysis

Cut-off analysis is the process where auditors examine the company's procedures involving the test of the last few receiving and shipping transactions before conducting the physical count. Lsigroup

Why does this matter? Say the physical count happens on March 30. If goods received on March 29 haven't been entered into the system yet — but are physically sitting in the warehouse — they'll show up as an excess. If goods dispatched on March 29 are still in the system but physically gone, you'll have a shortage. Cut-off errors are common, especially in high-volume businesses, and they need to be tracked separately from actual discrepancies.

Step 5: Reconciliation and Discrepancy Analysis

Once the physical count is done, the auditor compares it against book records line by line. Every variance gets documented. Look for missing stock caused by theft, misplacement, or accounting errors. Check for overstatement due to duplicate entries or unsold returns not accounted for.

A CA auditing an FMCG company found that unsold promotional packs were recorded as sold, inflating revenue. This was corrected after reconciliation. This is a real example of how inventory audit catches issues that would otherwise go undetected until the annual statutory audit — by which point the financial statements are already affected.

Under CARO 2020, discrepancies of 10% or more in aggregate for each class of inventory must be specifically reported. That's the regulatory materiality threshold — but a good auditor investigates significant variances even below that level.

Step 6: Valuation Check

Stock audit isn't always just about counting. The assertion about valuation of stock confirms that the method of stock valuation is correct and applied consistently, and the condition of stock is identified based on their valuation.

The auditor checks whether the valuation method — FIFO, weighted average, or standard cost — is being applied consistently and in line with Ind AS 2 (Inventories). The auditor should examine the methods of applying the basis of inventory valuation — and with regard to determination of cost, verify the treatment of overhead expenses as a part of cost of inventories.

For bank borrowers, this is particularly important because banks require inventory verification to ensure sufficient stock value covers the loans provided to businesses. An inflated or improperly valued stock statement is one of the most common triggers for NPA classification.

Step 7: Reporting

The final step is putting everything together in a structured audit report. The stock audit report should include a concise overview of key findings and overall inventory status, define coverage including reporting period and inventory types verified, explain audit techniques used such as physical verification and sampling, detail significant issues including mismatches, shrinkage, obsolete or expired goods, and procedural lapses, and suggest corrective and preventive measures.

For bank borrowers, the report is submitted directly to the bank. For statutory audits, findings feed into the CARO 2020 reporting. For internal audits, the report goes to management — with recommendations that are actually actionable.

What Documents Are Needed for a Stock Audit?

A stock audit runs smoothly only when the auditee has documents ready. Without these, the auditor either has to delay or work with incomplete information — both of which create problems.

The essential documents include the stock ledger or inventory register, goods receipt notes (GRNs), material issue notes, purchase orders, dispatch records or delivery challans, bin cards, inspection reports, last stock statement submitted to the bank (for borrowers), insurance policy covering stock, and warehousing agreements if stock is in third-party locations.

For bank borrower stock audits, required documents include the stock statement for the prior month fully attested by a CA, last three months' bank statements, details of collateral security, and a copy of relevant company filings.

Missing even one of these — especially the insurance policy — can create complications. Complaints regarding inadequate insurance coverage and inaccurate descriptions of products and locations in the policies are promptly addressed during a stock audit — preventing the borrower from suffering needless losses in case of a claim.

Common Problems Found During Stock Audits

These patterns show up across sectors — retail, manufacturing, pharma, FMCG, and trading:

Stock on paper that doesn't exist physically — most commonly caused by theft, pilferage, or goods dispatched without proper documentation. Duplicate GRN entries inflating inward stock. Returned goods from customers that were never physically verified or adjusted in the system. Slow-moving and expired items sitting in the inventory at full value. Stock held at third-party locations — stockists, C&F agents, job workers — not included in the count. Inventory in transit — analysis to track the time between the date of shipment and the date of receipt when materials are moving between locations ensures that all items are not lost while in transit.

The most damaging scenario for a bank borrower is inflating the stock statement to draw higher Working Capital limits than the actual stock justifies. Banks are increasingly alert to this — which is why they appoint independent CA firms rather than relying on borrower-submitted statements alone.

Frequency: How Often Should You Do a Stock Audit?

Stock audit is a quarterly audit under which the auditor mainly examines certain specific aspects of inventory management and control. Lsigroup For bank borrowers with large credit exposure, quarterly is standard. For statutory purposes under CARO 2020, annual is the minimum — but reasonable intervals matter, and what's "reasonable" depends on the nature and value of inventory.

High-value, fast-moving inventory — pharmaceuticals, FMCG, electronics — typically warrants more frequent checks. Slow-moving heavy industrial stock may be fine with an annual review. The key is consistency — and that the frequency you follow is documented and defensible to your auditor.

Stock Audit Fees in India: What to Expect

The fee for stock audit services starts from Rs 2,499 per man day, excluding out-of-pocket costs, and varies with the stock audit scope — including factors like the number of SKUs, whether a night audit is required, location, number of days required, and inventory complexity.

For businesses evaluating stock audit services in India, cost should never be the only consideration. The firm's industry experience, past audit track record, and whether they have a PAN India team for multi-location audits matter far more than saving a few thousand rupees on the fee. A poor stock audit that misses a 15% inventory discrepancy costs far more in bank relationship damage than any fee saving.

Stock Audit vs. Physical Verification: Are They the Same?

People use these terms interchangeably — but there's a meaningful difference in scope.

Physical verification is typically a management exercise. The company's own team counts the stock and certifies the balance. It satisfies the basic internal control requirement and is what CARO 2020 requires management to conduct at reasonable intervals.

A stock audit is an independent, external verification — done by a CA firm that has no relationship with the auditee. It goes beyond just counting. It covers internal controls, valuation, cut-off, documentation, and condition assessment. For bank credit monitoring, only an independent stock audit counts. A management-conducted physical verification won't satisfy the bank's requirement.

10 FAQs — Short, Direct Answers

1. What is a stock audit in simple terms? It's an independent physical verification of inventory, comparing what's physically present against what the books show — and investigating any gap.

2. Is a stock audit mandatory in India? Yes, for companies covered under CARO 2020 and for bank borrowers with working capital exposure above prescribed limits — typically Rs 1 crore or more.

3. Who conducts a stock audit? An independent CA firm appointed either by the company (for statutory purposes) or by the bank (for credit monitoring). The auditor must have no financial relationship with the entity being audited.

4. How often should a stock audit be done? Quarterly for bank borrowers with significant credit exposure. At least annually for statutory compliance under CARO 2020. High-value or fast-moving inventory may warrant more frequent internal checks.

5. What is the difference between floor-to-sheet and sheet-to-floor verification? Floor-to-sheet starts from physical items and checks if they're in the records. Sheet-to-floor starts from records and locates items physically. Running both catches different types of errors.

6. What happens if major discrepancies are found? Under CARO 2020, discrepancies of 10% or more per class must be reported. Banks may restrict drawing limits, ask for explanations, or escalate to NPA monitoring if discrepancies are significant or unexplained.

7. What is a cut-off analysis in stock audits? It verifies that stock movements near the audit date — inward or outward — are recorded in the correct period. It prevents timing-based errors from appearing as actual inventory discrepancies.

8. Can a stock audit be done remotely or digitally? Partly. Data extraction, reconciliation, and report preparation can be done digitally. But the physical count itself — especially for bank audits — must be done in person at the premises.

9. What is the minimum stock audit fee in India? Starting from Rs 2,499 per man day for straightforward assignments. Complex, multi-location, or night audits cost significantly more depending on scope, SKU count, and location.

10. Does a stock audit cover fixed assets too? Not by default. Standard stock audits cover inventory only. Fixed asset verification is a separate exercise — though some engagements combine both if included in the agreed scope.

Final Thoughts

A stock audit done well isn't painful. It's clarifying. It tells you exactly where your inventory stands — which units are real, which are missing, which are unsaleable, and whether your internal controls are actually working or just assumed to be.

For businesses with bank borrowings, it protects the lending relationship and prevents the kind of nasty surprises that end in NPA classification. For growing companies, it keeps the inventory system honest as scale increases.

The businesses that treat stock auditing as an operational tool — not just a compliance box to tick — are the ones whose inventory numbers actually mean something. And in India, where inventory is often the single largest item on the balance sheet, that meaning matters a lot.