What is the first step when an inventory discrepancy is found?

• A. Initiate an external audit of the business.
• B. Investigate the discrepancy.
• C. Postpone the issue until the next audit.
• D. Notify customers.

Answer: (B)

When inventory discrepancies appear, the first step is to investigate the discrepancy. Start by reconciling the numbers: recount the stock, compare the physical count with the system records, and review recent transactions—receipts, returns, transfers, and shipments—to identify where the mismatch originated. Check for clerical errors, mislabeling, or stock moved to the wrong location, and consider whether spoilage or theft could be factors. The goal is to determine the cause and the scope before taking broader action. Jumping to an external audit, postponing the issue, or notifying customers doesn’t address the root cause and can cause unnecessary confusion. Once the root cause is understood, you can decide on appropriate corrective steps, such as adjusting records, tightening controls, or conducting a formal investigation if theft or loss is suspected.