Both involve a CA standing in a godown counting goods, so they are easy to confuse. They are different engagements. A bank stock audit is commissioned by a lender to protect its security. Inventory observation by the statutory auditor is one procedure inside the audit of the financial statements, done to support the opinion on them.
Last reviewed: 17 October 2026. Facts checked. We opened search results containing the text of ISA 501 and its UK and Australian versions, which the Indian SA 501 is based on, and a Taxmann summary of an NFRA observation on stock-taking attendance (summary only). We could not open the ICAI text of SA 501, any bank's stock audit circular or RBI guidance, so no bank-specific thresholds, frequencies or report formats are stated. Check the sanction letter and the bank's own instructions for those.
The difference in one table
| Bank stock audit | Statutory auditor's inventory observation | |
|---|---|---|
| Who asks | The lender | The law requires the audit; the auditor decides the procedure |
| Who reads the output | The bank | Shareholders and other users of the financial statements |
| Main question | Is the stock the borrower declared actually there, owned, insured, saleable and in the right value for drawing power? | Does inventory exist, in what condition, and is it counted properly at the balance sheet date? |
| Timing | Set by the bank or the sanction terms | Around the year end |
| Output | A stock audit report to the bank | Audit evidence in the working papers, then the audit opinion |
What the lender cares about
A bank wants comfort that the security behind a cash credit limit is real. A bank stock audit therefore often looks at items the statutory auditor would not stress: whether stock is pledged to anyone else, whether goods sit with third parties, how old the stock is, how it ties to the stock statement submitted to the bank, and how the drawing power was calculated. Our guide to what a stock audit is covers the basics, and the drawing power calculation guide shows the arithmetic.
What the statutory auditor cares about
SA 501 is based on ISA 501. Per the text of that standard, where inventory is material the auditor obtains sufficient appropriate evidence on its existence and condition by attending the physical count, unless that is impracticable. The auditor evaluates management's count instructions, observes the count, inspects the inventory and performs test counts. If unforeseen circumstances stop attendance, the auditor makes or observes some counts on another date and tests transactions in between. If attendance is impracticable, alternative procedures are needed, and if they cannot give enough evidence the opinion is modified. Confirm the paragraph numbers in the Indian text.
The statutory auditor is also interested in valuation, cut-off and obsolescence, because they affect the numbers in the balance sheet. Our stock count procedures guide lists the steps.
Can one count serve both?
Sometimes the two timings coincide, and the same visit produces useful information for both. But each engagement has its own purpose, report and responsibility.
- A bank stock audit report is not audit evidence for the opinion unless the auditor assesses its quality and the stock auditor's competence and independence. The statutory auditor owns the opinion.
- The statutory auditor's attendance does not satisfy a bank's stock audit requirement, which the sanction terms define.
- If one firm does both for the same company, check independence and any bank restrictions on the stock auditor.
A common problem: the count is not on the balance sheet date
Many companies count a few days before or after the year end. The auditor then needs to roll the count forward or back using receipts and dispatches, and test that roll-forward. A bank stock audit done two months earlier tells the statutory auditor little about the closing position.
Where firms get this wrong
- Treating a clean stock audit report as proof of existence at year end.
- Attending the count but not testing cut-off in the days around it.
- Not recording stock held at third parties or in transit.
- Skipping the old stock review because "the bank has done it".
Frequently Asked Questions
Is a stock audit mandatory?
For a company's statutory audit, no separate stock audit is mandated. Banks may require one under their own terms for working capital limits. Check your sanction letter.
Who can do a bank stock audit?
That depends on the bank's empanelment and instructions. See our note on bank stock audit empanelment.
Does the statutory auditor have to attend the count?
Where inventory is material, the standard expects attendance unless impracticable, with alternatives where it is.
Is inventory audit the same as stock audit?
The words are used loosely. In practice, "stock audit" usually means the lender-driven one.
Related Articles
Statutory facts on this page are checked against their sources, and the page says where it relied on secondary reporting. How we verify · Report an error