What We Look for During Inventory Count Observation

Physical inventory remains one of the most tangible parts of a financial statement audit. When Shiosai arrives at a warehouse or factory floor, we are not there to recount every unit for management — we are there to observe whether the count process itself produces reliable quantities for the balance sheet.

Before the count date we ask for floor plans, cut-off instructions, and the list of count teams. Weak cut-off — goods shipped but still on the floor, or receipts recorded after the count — is a common source of misstatement for coastal distributors who move product daily through Hakodate and Tomakomai ports.

During observation we watch how tags are issued, how damaged stock is segregated, and whether slow-moving items are identified for later valuation testing. We also select test counts: items we recount independently and compare to the client’s sheets.

After the count we reconcile tagged quantities to the perpetual records and investigate large variances before year-end close. Controllers who schedule a dry-run count two weeks early usually see fewer adjustments on the final day.

If your first statutory audit is approaching, share your count timetable with us early. Observation slots fill quickly in March, when many Hokkaido manufacturers close their fiscal year.