Jewellery Business Audit: Gold Stock, Hallmarking and Cash Checks

A jewellery audit checks that gold and stones on hand match the books by weight and purity, that every sale and old-gold purchase is recorded, that hallmarked items are sold under the rules, and that cash dealings are traceable. The business is a mix of metal, labour and cash, and gold price changes can turn a good margin into a loss overnight.

Last reviewed: 17 October 2026. Facts checked. We ran a web search on hallmarking and the reporting rules for dealers in precious metals. It returned the BIS site, a law-firm article and several commercial registration sites. We read the search summaries and did not open the BIS standard, the Hallmarking Order or the PMLA rules. The search indicated that mandatory hallmarking covers certain gold fineness grades through a rollout by district, that BIS registration is required to sell hallmarked jewellery, and that dealers in precious metals may be reporting entities under money-laundering law for large cash dealings. A commercial source gave a cash threshold which we do not repeat because we could not confirm it. Sources conflicted on several details, so confirm district coverage, grade list and exemptions against the current BIS order and FIU-IND guidance. We checked existing site posts to link only to pages that exist.

What is distinctive about jewellery

• Stock is measured in grams, carats and pieces, not only rupees. The same ornament has gross weight, net metal weight and stone weight.
• Value moves with the gold rate each day. Inventory valuation and hedging matter.
• Sales include making charges, wastage and old gold exchange, which complicates the bill.
• Customers often pay in cash, and gold purchases are a known vehicle for unaccounted money.
• Artisans, karigars and job workers hold metal on behalf of the shop. Metal sent out may sit with them for weeks.
• Many jewellers finance stock through gold metal loans, banks or customer schemes, such as monthly savings plans.
• Hallmarking rules affect what can be sold and how it is marked.

Key risks

1. Stock shortage. Gold or stones missing, or substitution of lower purity.
2. Karigar balances. Metal issued to artisans not returned in the expected finished weight.
3. Old gold. Purchases from customers without identity records or proper rates.
4. Cash sales. Large cash transactions without identity checks or reporting.
5. Hallmarking breaches. Selling unhallmarked items where hallmarking is mandatory.
6. Valuation. Stock held at the wrong basis when the gold rate moves.
7. Customer schemes. Advance savings schemes not recorded as liabilities.
8. Metal loans and hedges. Gold borrowed in metal terms and not measured at the closing rate.

Audit programme in steps

Step 1: Understand the stock structure

List stock locations: showroom counters, safe, vault, karigar accounts and items on approval. Note the books that record metal separately from rupee value, such as a metal ledger. Obtain the latest stock register by item, weight and purity.

Step 2: Observe a physical count

Plan a full count with the owner's team, using weighing scales that are calibrated and sealed where required. Follow the stock count procedures. In addition:

• Count and weigh item by item, and record gross, net and stone weight.
• Test a sample of items for purity using the shop's testing equipment or an independent assayer.
• Seal and count the safe and vault at one time to avoid movement between counters.
• Obtain written confirmations of metal held by karigars and job workers.

Step 3: Reconcile weight, not only value

Tie opening metal, purchases, issues to karigars, receipts, sales and closing metal in grams. Compute wastage and compare to norms agreed with each karigar. An unusual loss or gain is a lead.

Step 4: Test sales and billing

Sample invoices across counters. Check the bill shows weight, purity, rate, making charge, stones and tax. Compare the rate used to the day's published or shop rate, and test discounts. Where the invoice mentions a hallmark unique identification number, check it against the item. Review exchange of old gold: the item received, its weight and testing, the rate allowed and the net bill.

Step 5: Test old gold purchases

Check the customer's identity record, the weight and purity test and the payment method. Old gold bought for cash at large value needs close review. Look for repeated small purchases from one person that add up.

Step 6: Review cash and compliance with reporting rules

Review cash receipts and payments by day. Check for splitting of bills to stay below limits and for sales to the same customer on consecutive days. Find out whether the business is a reporting entity under the anti-money-laundering law, and if so whether registration, identity records and reports are in place. Verify that deposits to the bank match the cash book. Our cash checklist helps with the bank side.

Step 7: Review hallmarking compliance

Check that the jeweller holds the BIS registration needed to sell hallmarked jewellery, and that its hallmarked items carry the required marking. Review how unmarked old stock was handled and whether any items were sold in a district or grade not covered by the mandate. Confirm the current coverage from the official order, not from commercial pages.

Step 8: Test valuation

Check the basis of stock valuation: cost or net realisable value, whichever is lower, under the applicable framework. Check how metal borrowed or hedged is valued at year end and whether gains or losses are in the right year. See the inventory checklist.

Step 9: Test customer schemes and advances

Reconcile instalment scheme balances to customer records. Confirm the terms on redemption, bonus and forfeiture. Where deposits are taken from the public, check the legal position carefully, as deposit rules may apply. Treat anything unclear as a matter for legal advice.

Step 10: Test finance, tax and payroll

Review gold metal loans and bank credit for agreements, interest and covenant conditions. Check GST on gold, making charges and job work, and confirm current rates from notifications because we did not. Test TDS and TCS applicability on cash sales and on purchases from the unorganised sector with the current provisions. Check payroll for showroom staff and karigars.

Common findings

• Count differences between weight register and physical stock.
• Karigar balances without confirmations.
• Old gold bought without customer identification.
• Bills that split a single sale into several.
• Gold rate differences between the invoice and the day's rate.
• Savings scheme balances not reconciled.
• Hallmarking registration lapsed or limited in scope.

Which Indian rules to check

Name only. Verify current text:

• The Bureau of Indian Standards Act, 2016 and the Hallmarking of Gold Jewellery and Gold Artefacts Order in force.
• The Prevention of Money-laundering Act, 2002 and its rules, for dealers in precious metals.
• GST law for gold, making charges and job work.
• The Income-tax Act, including provisions on cash receipts and TDS or TCS.
• Banning of Unregulated Deposit Schemes Act, 2019 and the Companies Act deposit rules for customer deposit schemes.
• State shops and weights and measures laws.

FAQs

Why weigh stock in grams and not only value it?

Value changes with the gold rate, while weight shows whether metal is missing.

What is the biggest control weakness in jewellery?

Metal with karigars and cash dealings, both of which are hard to trace.

Can an auditor test purity?

Not alone. Use the shop's equipment, an assayer or a hallmarking centre for a sample.

Related Articles

• Stock count procedures
• Inventory internal audit checklist
• Cash and bank internal audit checklist
• Fraud risk assessment in internal audit

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