Quick answer
What is a stock audit and who orders it?
A stock audit is a bank-ordered verification of the inventory and receivables hypothecated against a working capital loan. The lender appoints a practising chartered accountant from its panel, who checks that the stock exists, belongs to the borrower, is fairly valued and insured, and supports the drawing power the borrower is claiming.
- Ordered and paid for under the bank's own policy
- Done by a CA firm on the bank's panel
- Usually once a year for eligible accounts
- Thresholds are set by each bank, not one national limit
What is a stock audit in banking?
In banking, a stock audit is the lender's way of confirming that the goods and book debts charged to it are actually there and are worth what your monthly stock statement says. It is a monitoring tool for cash credit, overdraft and similar working capital limits, not a statutory audit of your accounts.
The word is also used by retailers for an internal count of shelf stock, and many search results mix the two. On this page we mean the bank version: an outside chartered accountant, appointed by the lender, who reports to the lender. You cooperate and provide records, but the report goes to the bank first.
One published policy sets out the purpose plainly. Tamilnad Mercantile Bank's Stock Audit Policy 2025-26 says the main objective is to find out whether the borrower's stock and debtors, against which finance has been given, are available and valued correctly, and to test that the debtors list is genuine.
Who needs a bank stock audit and when?
You need a bank stock audit when your sanction letter says so. Banks apply it to borrowers whose working capital limit crosses a level set in their internal policy, usually where the primary security is hypothecation of stock or book debts. There is no single limit for every bank.
The figures below come from one bank's board-approved policy and are an example only. Your own bank's limit may be higher or lower, so read the stock audit clause in your sanction letter.
| Situation | What the policy says |
|---|---|
| Working capital limits of ₹3 crore and above (fund and non-fund based) | Stock audit once a year where stock or book debts are the primary security |
| Limits below ₹3 crore | Only on specific request of the credit department or regional office |
| Takeover of a working capital account of ₹3 crore and above | Stock audit before disbursement |
| NPA accounts of ₹3 crore and above with stock or debtor security | Still covered by stock audit |
| Earlier threshold | ₹5 crore, later reduced to ₹3 crore |
Source: Tamilnad Mercantile Bank Stock Audit Policy 2025-26, approved by its board on 20 August 2025, checked October 2026. Other banks set their own limits.
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What does a stock auditor check? Scope checklist
A stock auditor checks that the hypothecated stock physically exists, is paid for, is correctly priced in the stock statement, is insured with the bank's clause, and is not charged to another lender. The auditor also reviews debtor ageing, account conduct and compliance with sanction terms.
The checklist below follows the objectives listed in the bank policy cited above. Your bank's engagement letter may add or remove items, and the auditor must stay within that letter.
- Physical count of raw material, work in progress and finished goods at each location named in the sanction.
- Value of paid stock only: unpaid stock covered by trade creditors, and goods bought under letters of credit, are taken out.
- Purchase and sale prices compared with the rates declared in the stock statement.
- Stock register, purchase and sales registers, invoices, debit and credit notes.
- Slow-moving, damaged or obsolete stock, and whether it has been left out of drawing power.
- Storage and handling, and whether a bank hypothecation board is displayed where required.
- Insurance cover against fire and other risks with the bank clause, for the right value and period.
- Confirmation that the same stock is not hypothecated to another bank.
- End use of funds and signs of diversion to sister concerns.
- Account conduct: cash withdrawals, cheque returns, overdrawings, devolved letters of credit.
- Age-wise list of debtors as per books against the list given to the bank.
- Quarterly returns and stock statements against the books.
- Compliance with every sanction condition.
What is a stock statement and how does drawing power work?
A stock statement is the periodic return you file with your bank listing stock and debtors on a given date; the bank uses it to set your drawing power, which is the amount you may actually draw within the sanctioned limit. A stock audit tests whether those statements are true.
Drawing power is generally worked out as eligible stock less the bank's margin, plus eligible debtors less the debtor margin, and it can never exceed the sanctioned limit. Margins and the age cut-off for debtors are fixed in your sanction letter, so use those figures rather than any market rule of thumb.
| Line | Amount (₹ lakh) |
|---|---|
| Stock as per statement | 200 |
| Less: unpaid stock (trade creditors) | 40 |
| Paid stock | 160 |
| Less: stock margin as per sanction (say 25%) | 40 |
| Eligible stock value | 120 |
| Debtors within age limit | 80 |
| Less: debtor margin as per sanction (say 25%) | 20 |
| Drawing power before cap | 180 |
| Drawing power allowed (if sanctioned limit is ₹150 lakh) | 150 |
Illustration only. The method is widely described, for example by this practitioner guide; your margins come from your own sanction letter.
What documents should you keep ready for a stock audit?
Keep the last few stock statements, the stock register, purchase and sales records, a fresh debtor and creditor ageing, insurance policies and the sanction letter ready before the auditor arrives. Missing records are reported as a limitation and often lead to a lower drawing power.
| Document | Why the auditor asks for it |
|---|---|
| Sanction letter and latest renewal | Defines limits, margins, locations and reporting frequency |
| Stock statements and quarterly returns submitted to the bank | Compared with books and physical stock |
| Stock register or inventory report from Tally, ERP or Excel | Quantity and value by item and location |
| Purchase and sales registers with invoices | Price check and cut-off at the audit date |
| Debtor ageing and creditor ageing on the audit date | Eligible debtors and unpaid stock |
| GST returns (GSTR-1 and GSTR-3B) for recent months | Cross-check of declared sales |
| Insurance policy with bank clause | Cover, value, period and locations |
| Bank statements of all accounts, including other banks | Diversion and double financing checks |
| Latest audited or provisional financial statements | Overall consistency of stock and debtor levels |
| Godown rent agreements or ownership proof | Confirms the premises named in the sanction |
How does a bank stock audit work: step by step
The bank sends an engagement letter to a panel CA, the CA contacts you, visits your godowns and office, then sends the report to the bank. The bank asks your branch to reply to each remark and closes the audit once the gaps are fixed.
- 1
Bank allots the audit
The credit monitoring team picks a CA from its stock audit panel and sends an engagement letter naming your unit and the tasks.
- 2
Auditor requests records
You receive a list of documents and a visit date. Share the stock statement for the audit date and the books up to that date.
- 3
Physical verification
The auditor counts or test-checks stock at each location, inspects storage, looks for obsolete goods and checks the hypothecation board and insurance.
- 4
Desk review
Books, registers, invoices, debtor ageing and bank statements are compared with what was reported to the bank.
- 5
Report to the bank
The auditor submits the report with the drawing power worked out, any shortfall and remarks. The bank policy we cite gives the auditor a fixed period after fieldwork to submit.
- 6
Your reply and closure
Your branch asks you to explain or fix each remark. A shortfall is usually corrected by bringing in funds, adjusting the limit or submitting corrected statements.
What are the common findings in a stock audit report?
The most common findings are a gap between book stock and the stock statement, old or non-moving goods still counted in drawing power, unpaid stock not deducted, expired or short insurance, and debtors older than the sanction allows. Each one reduces your eligible drawing power.
- Statement does not match books. Stock declared to the bank is higher than the stock register on the same date.
- Old stock included. Damaged, slow-moving or obsolete items are still valued at cost in the statement.
- Creditors ignored. Unpaid purchases have not been deducted to arrive at paid stock.
- Old debtors counted. Debtors beyond the age limit or from related parties are shown as eligible.
- Insurance gaps. The policy has lapsed, lacks the bank clause, or covers a different address.
- Unlisted locations. Stock is kept at a godown not named in the sanction.
- Diversion signals. Large transfers to sister concerns or cash withdrawals that do not fit the trade.
- Non-cooperation. The policy we cite says further drawings may be restricted if the borrower does not cooperate with the auditor.
Accurate books are the best preparation. Many shortfalls come from poor month-end closing, not from missing goods. Our accounting and bookkeeping page covers how to keep stock and debtor ledgers current.
Who can do a stock audit and can you choose the auditor?
Usually you cannot choose. The bank appoints a chartered accountant firm from its own panel, and the stock audit report is addressed to the bank. The policy we cite also bars the borrower's own auditor from doing the stock audit, and rotates the stock auditor each year.
That independence rule matters if a CA you already use offers to do it. The bank will not accept a report from your statutory or tax auditor. What you can do is prepare: ask your accountant to reconcile stock, debtors and creditors before the visit, and keep insurance and statements current.
The same bank policy asks for panel firms with at least two chartered accountants, bank audit experience and, where possible, an office in the branch's city. Panels differ from bank to bank. To check that any CA is a practising member, search ICAI CA Connect.
Can CA in Delhi do my stock audit?
No. A bank stock audit is attest work that only a practising chartered accountant appointed by your lender can perform, and ICAI's Code of Ethics 2026 does not allow CA firms to take reserved work through aggregator listings. We give information only here, with no fees or bookings.
Borrowers can still use this site to get ready. Our directory of chartered accountant firms in Delhi lists firms for non-reserved work such as bookkeeping and GST, and the related CMA data and project report for bank loan pages explain the papers banks ask for at sanction and renewal. Manufacturers in the industrial area can also see our CA in Wazirpur page. For an overview of every attest certificate, start with CA certificates: types and format.
Frequently asked questions
Is stock audit mandatory for all bank loans?
No. It applies to working capital limits secured by stock or book debts once they cross the level in your bank's policy. Term loans for machinery or property are not usually stock audited. Your sanction letter states whether a stock audit applies to your account and how often.
Who pays for a bank stock audit?
The bank appoints and instructs the auditor, but most sanction letters recover the cost from the borrower's account. Check the charges clause in your sanction letter. We do not quote stock audit fees on this site because the work is reserved for chartered accountants.
How often is a stock audit done?
The bank policy we reviewed requires one stock audit a year for eligible accounts, plus a pre-disbursement audit when a working capital account is taken over from another bank. A bank can order an extra audit at any time if it has concerns about your account.
What is a bank stock audit report?
It is the auditor's report to the lender, usually in the bank's own format, covering physical stock, valuation, debtors, insurance, account conduct, sanction compliance and the drawing power worked out on the audit date. It ends with any shortfall and remarks the branch must follow up.
What happens if the stock audit shows a drawing power shortfall?
The bank will ask you to bring the account within the corrected drawing power, either by depositing funds or by submitting corrected statements backed by stock. The policy we reviewed also escalates large shortfalls to senior management. Repeated shortfalls can affect renewal and account classification.
Is a stock statement certificate the same as a stock audit?
No. A stock statement is your own periodic declaration to the bank, sometimes certified by a CA when the sanction asks for it. A stock audit is a separate verification by the bank's panel auditor who visits your premises and tests that declaration.
Can my statutory auditor do the stock audit?
Generally no. Banks want an independent view, and the policy we reviewed says the auditor engaged for a borrower must not be that borrower's own auditor. It also stops the same stock auditor from repeating the audit for that borrower the next year.
How long does a stock audit take?
Fieldwork for a small or mid-sized unit is often one to a few days, depending on locations and item count. The bank policy we reviewed expects the auditor to submit the report within a set number of days after finishing fieldwork, so plan your replies quickly.
Does the stock audit check GST returns?
Many auditors compare sales in the books with GSTR-1 and GSTR-3B for recent months, because a large gap can point to understated or overstated stock. Keep your GST return filing up to date before the visit.