The annual stock count in Ukraine: deadlines, documents, mistakes

The annual stock count is the procedure most companies treat as a formality and then wonder why the auditor will not accept the result. The reason is almost always the same: the deadline was met but the paperwork was written after the fact. Here is who has to do it, exactly when, and what has to exist on paper for the count to hold up in front of an inspector or an auditor.

Who has to do it

An inventory before the annual financial statements is mandatory for everyone who prepares those statements, which means every legal entity regardless of tax regime or size. The procedure is set by the Regulation on the inventory of assets and liabilities, approved by Ministry of Finance order No. 879 of 2 September 2014.

Beyond the annual count, an inventory is also mandatory when a person with material responsibility changes, when theft or abuse is discovered, after a fire or natural disaster, on liquidation, and at the request of a court or law enforcement in the cases the law provides for.

When exactly

The annual inventory is carried out within the three-month period before the balance sheet date, which in practice means between 1 October and 31 December. It does not mean 31 December at 23:50: most companies count inventories and fixed assets in November and leave cash and settlements closer to year end.

The part that gets forgotten: the results have to be recorded in the accounts in the month the count was completed, so no later than December. Counting in December and posting in January is an error that shows immediately.

The documents that must exist

• An order to carry out the inventory naming the commission and the dates, dated BEFORE the count starts, not after.
• Written statements from the people with material responsibility confirming that all documents have been submitted to accounting and all items recorded.
• Inventory sheets per storage location and per responsible person, signed by every member of the commission.
• Reconciliation statements wherever the physical count differs from the books.
• Minutes of the commission with conclusions and proposals on the differences.
• The director’s decision on those minutes, and the posting of the results.

What gets counted besides the warehouse

“Inventory” makes most people think of stock, which is exactly why half the objects get skipped. The count also covers fixed and intangible assets, construction in progress, cash on hand, strict accountability forms, receivables and payables, provisions and reserves, and assets that belong to someone else but are held by the company: goods in safekeeping, in processing or under lease.

Receivables and payables are counted through reconciliation statements with counterparties. That is the slowest part, so it is started first rather than in the final week.

The most common errors

• The order is dated after the count actually happened and the dates do not line up.
• The sheet carries the signature of someone who was not at work that day, which the timesheet shows.
• Receivables were not counted at all, though they are the larger part of the balance sheet.
• Differences were found but there is no director’s decision and nothing was posted.
• Results were posted in January of the following year.
• The person with material responsibility sits on the commission checking their own area.

Why the auditor cares

Where inventories are material to the statements, the auditor is required to attend the count rather than review the finished sheet. That is why the auditor is told the date in advance, before the count happens. Companies that remember the audit in February cannot close this point any more: there is nothing left to observe. More on how the work is structured in how an audit actually runs.

If there is no one in-house to run the count, or an independent observer is needed, that is a separate engagement: inventory count.