How frequently should physical inventories be conducted?

Conducting physical inventories at least annually or more frequently as needed is a best practice that ensures accurate accounting of assets. Regular inventories allow organizations to verify that inventory records match the actual physical items on hand. This process helps identify discrepancies such as theft, loss, damage, or clerical errors that may occur throughout the year.

An annual inventory serves as a foundational check, while more frequent inventories can be beneficial in dynamic environments where assets are in constant flux. For organizations with high-value items, high turnover rates, or past issues with inventory inaccuracies, conducting physical inventories even more frequently may be warranted to maintain effective control and ensure accountability.

Other options suggest intervals that may be too infrequent for effective management. Conducting inventories every month could be excessive and resource-consuming for many businesses, while a five-year interval lacks the responsiveness needed to address issues that may arise more frequently. Limiting inventory checks to company audits could lead to significant problems going unnoticed until the next audit, which could result in substantial financial discrepancies and operational inefficiencies.