Stock-taking

Stock-taking or "inventory checking" or "wall-to-wall" is the physical verification of the quantities and condition of items held in an inventory or warehouse. This may be done to provide an audit of existing stock. Discrepancies between book inventory and physical inventory must be traceably documented and accounted for in the balance sheet.^[1] While they are often used interchangeably, stock and inventory are two different things. Stock is the products sold by a business. Inventory includes all items required to make, store or sell your stock.^[2] The prerequisite for any proper bookkeeping is inventory-taking for the business assets at the beginning of the entrepreneurial activity and at the end of every fiscal year.^[3]^[4]

Stock-taking may be performed as an intensive annual, end of fiscal year, procedure or may be done continuously by means of a cycle count.^[5] An annual end of fiscal year stock-taking is typically undertaken for use in a company's financial statements. It is often done in the presence of the external auditors who are auditing the financial statements.

Periodic counting is usually undertaken for regular, inexpensive items. The term "periodic" may refer to annual stock count. However, "periodic" may also refer to half yearly, seasonal, quarterly, monthly, bi-monthly or daily.^[6] For expensive items a shorter period of stock-taking is preferred.^{[citation needed]}

A stock-take sale is a sale with reduced prices in a shop designed to sell off stock from previous seasons. This makes the task of stock-taking easier.

Another purpose of stock take is determination of a cutoff point i.e. what was the stock position of the company/organization at a specific point of time.

However, such stock-taking tasks are often laborious and often lead to significant warehouse operational downtime, ranging from days to weeks.

Physical inventory

Physical inventory is a process where a business physically counts its entire inventory. A physical inventory may be mandated by financial accounting rules or the tax regulations to place an accurate value on the inventory, or the business may need to count inventory so component parts or raw materials can be restocked. Businesses may use several different tactics to minimize the disruption caused by physical inventory.

Inventory services provide labor and automation to quickly count inventory and minimize shutdown time.
Inventory control system software can speed the physical inventory process.
A perpetual inventory system tracks the receipt and use of inventory, and calculates the quantity on hand.
Cycle counting, an alternative to physical inventory, may be less disruptive.

The Finance or Business Manager of the unit is responsible for ensuring the annual physical inventory is properly performed, inventory records reflect actual quantities on hand, inventory valuation methods are appropriate, and adjustments are entered in the business's accounting system on a timely basis. In addition, the Finance or Business Manager is responsible for ensuring that segregation of duties is maintained throughout the inventory process to promote the safeguarding of the assets, protection of employees, and objective reporting of inventory. Specifically, no one person should be able to authorize a transaction (e.g., a purchase or sale), record the transaction, have custody of the inventory, and perform the related reconciliation.

Book inventory

Book Inventory is the non-physical, documentary-based valuation of a business's intangible and financial assets and liabilities, that are not physically counted.^[4]

It specifically covers: intangible assets, receivables, and liabilities. These items are determined solely based on their monetary value using documented evidence, such as:documents, bank statements, balance confirmations, and book entries. The Book Inventory method is also applied to real estate, securities, and intangible assets.^[4]

Recognition and measurement Methods

Inventory Documentation is central to traceability, requiring complete, timely, and organized records that must be unalterable, complete, and verifiable at all times.

Key documentation includes:

Planning: Inventory plans detailing timing, scope, responsibilities, and specific procedures.
Counting: Physical count sheets or digital capture protocols identifying all counting units.
Verification: Protocols for statistical samples, control counts, and discrepancy analyses.
Valuation: Supporting documents for pricing bases, valuation assumptions, and any historical changes in electronic records.

Overall responsibility for the proper execution of inventory procedures rests with Management, who must ensure an adequate control environment is maintained, even when specific tasks are delegated. Clear assignment of duties for planning, execution, observation, and documentation is mandatory, and conflicts of interest must be avoided.^[6]

Inventory records are subject to statutory retention periods and must be securely stored against loss. Documentation, including electronic records, must satisfy requirements for integrity, readability, and immediate availability throughout the entire retention duration for inspection purposes.^[6]

Cut-off Date Inventory (or Physical Inventory)

Cut-off Date Inventory requires the physical count to occur on the balance sheet date under conditions of inventory quiescence and clear cut-off documentation to verify the existence and completeness of assets precisely at the reporting period end.^[1]

Perpetual Inventory

Perpetual Inventory requires continuous, reliable record-keeping and regular physical controls throughout the year to ensure that verifiable actual inventory values can be derived precisely for the balance sheet date.^[1]

Sampling Inventory

Sampling Inventory is permissible for determining the total inventory if the statistically based procedure is demonstrably reliable, offers comparable security to a full count, and comprehensively documents the method, selection, calculation models, and error tolerances.^[1]

IT-supported Procedures and Internal Controls

IT-Supported Inventory Procedures utilize digital devices (Scanners, mobile capture devices) and ERP systems, which are permissible provided the data flow is rigorously controlled, logged, and secured against manipulation, relying on strong internal controls like access rights, dual verification (four-eyes principle), and comprehensive log evaluations.^[1]

Valuation Methods

After the quantitative recording, the valuation takes place. Permissible methods include recognized, consistently applied methods such as individual valuation or standardized consumption sequences (e.g., FIFO, LIFO). Lower of cost or market considerations, write-downs for damaged or obsolete goods, and the separation between acquisition or production costs and subsequent valuations must be professionally presented and documented.^[1]

Legal Consequences and Risks

Impact on Annual Financial Statements and Results

Inaccurate inventory balances result in misstated assets and operating profit; subsequent corrections necessitate adjustments to key performance indicators (KPIs) and can alter the basis for dividend calculations.^[1]

Tax Relevance

Inventory valuations directly affect tax assessment bases; discrepancies between recorded and actual values can lead to mandated corrections, back tax demands, and require robust stocktaking documentation for the tax authority's recognition.^[1]

Liability and Responsibility

Deficient organization, weak controls, or intentional misstatements create liability risks, where documentation gaps and failures in due diligence increase the personal responsibility of the involved management and staff.^[1]

Audits and Objections (or Findings)

The adequacy of inventory procedures, controls, and documentation is assessed by internal and external reviews; findings may mandate financial statement adjustments, lead to qualified audit opinions (restrictions), or result in formal recommendations where traceability and consistency are the primary standards.^[1]

Sanctions and Administrative Offenses

Severe regulatory breaches or organizational failures can trigger sanctions and administrative offenses, with the resulting penalty determined by the gravity, scope, and financial impact of the deficiency, alongside the effectiveness of the internal control environment.^[1]

Special Inventory Constellations

Perishable Goods and Seasonal Merchandise

Due to short shelf lives and volatile prices, the physical condition and realizable value must be documented at the time of counting, often requiring valuation allowances (write-downs). Returns, write-offs, and disposal records must be meticulously documented.^[1]

Third-Party Inventory, Consignment, and Commission Goods

Inventory held by the company but not owned (foreign stocks) must be clearly segregated and separately identified from owned inventory. Similarly, owned inventory held by third parties must be identified. Contractual basis and ownership status must be traceable and shown in the inventory records.^[1]

Work in Progress (WIP), Construction, and Project Business

For partially completed goods or services, inventory is recorded based on the percentage of completion. Quantities, completion status, and valuation assumptions (e.g., calculated cost components) must be meticulously justified and supported by evidence.^[1]

E-Commerce and Distributed Warehousing

Multiple warehouse locations, fulfillment service providers, and cross-border storage necessitate a location-specific, consolidated inventory count. Responsibilities for counting and data consolidation must be clearly defined, including access to service providers' documentation.^[1]

Inventory Subject to reservation of title and security rights

Legal claims, such as reservation of title (retention of ownership) and security assignments, directly influence how inventory is classified and presented during stocktaking. The affected items must be kept identifiable and reported strictly according to the legal ownership rights.^[1]

International Aspects of Inventory Management

Multi-State Operations

Companies operating across different countries must adhere to local inventory regulations, requiring processes to capture variations in terminology, valuation rules, and specific documentation requirements across all jurisdictions.^[1]

Group-wide PoliciesGroup-wide policies (or corporate standards) are essential to ensure consistent minimum standards across all entities; they typically mandate unified procedures, define materiality thresholds, specify necessary control actions, and establish clear reporting channels to ensure comparability of inventory balances globally.^[1]

References

^ ^a ^b ^c ^d ^e ^f ^g ^h ⁱ ^j ^k ^l ^m ⁿ ^o ^p ^q ^r "Stocktaking (Inventur)". MTR Legal Wiki (in German). MTR Legal Rechtsanwälte. 2024. Retrieved 11 December 2025.
^ Unleashed Software, Stocktaking
^ The exact determination of existing assets and liabilities is referred to as Inventory
^ ^a ^b ^c Falterbaum, Hermann; Bolk, Wolfgang; Reiß, Wolfram; Kirchner, Thomas (2020). Bookkeeping and Balance Sheet: With Special Consideration of Balance Sheet Tax Law and Tax Law Profit Determination for Sole Proprietorships and Companies. Green Series (Grüne Reihe). Vol. 10 (23. ed.). Achim: Fleischer Verlag (Fleischer Publisher). p. 80. ISBN 978-3-8168-1503-7. Sections 2.1, 2.2, 3, 3.1, 3.2, 3.3 regarding Inventory and Inventory Ledger.
^ Antony Wild (2004), "Inventory checking (stocktaking)", Improving inventory record accuracy: getting your stock information right, pp. 96–107, ISBN 978-0-7506-5900-0
^ ^a ^b ^c Applegate, M., How Often Should You Do Inventory?, accessed 2 February 2017