There have been some changes to the Inventory Law. Ordinance no. 126/2019 of 2 May introduced a new requirement regarding the well-known reporting of closing stock for the financial year, which must be submitted by 31 January each year. Find out all the details below.

All about the new Inventory Law

What is the difference compared with the previous Law?

The main difference introduced by the new ordinance is that, from now on, the inventory report must include not only the quantities but also the value of that stock.

Why is it important?

Although it may seem like a small difference, it is of great importance. Sometimes, due to weaknesses in internal control or a lack of resources, for example, the inventory values included in year-end accounts were not always properly scrutinised, often leading to changes in the corporate income tax (IRC) bill. Since the value of closing stock for each financial year is one of the variables used to calculate the cost of goods sold and materials consumed (CMVMC), any changes in value, or doubts about the value to use, will also be reflected in the results for the year.

Greater rigour from the Portuguese Tax Authority

With this new legislation, the Portuguese Tax Authority (AT) requires greater rigour in inventory reporting, obliging companies to report to the AT by 31 January, regardless of the month in which they close the previous year's accounts. In other words, companies should now invest in appropriate and rigorous internal control systems that allow them to determine the quantities and values they hold in the warehouse on any given date. It is also important that they comply with and implement the permanent inventory system.

When should I do the last physical count of the year?

As far as possible, the last physical count of the year should preferably take place on 31 December, or in the first few days of the year, in order to minimise counting and system errors. Any differences detected between the actual counts and the system values should be corrected in good time, once their causes have been identified. Once these corrections have been made, the final value to be submitted to the AT is determined, and this value will appear in the year-end Balance Sheet.

Improve the efficiency of inventory management and implement the permanent inventory system

To deal with the changes introduced by the new Inventory Law, it is essential to invest in an internal control system that shows exactly the value and quantity held in the warehouse on any date, and to implement the permanent inventory system. The Openlimits approach provides the conditions for efficient inventory management, ensuring systems integration and that your ERP and your Purchasing, Stock and Inventory, Sales and other processes, records and physical stock are always consistent with the General Ledger.

Several companies have chosen Openlimits to support them in implementing the Permanent Inventory System. One of them was Beiragel, which is now able to meet the legal requirement for a permanent inventory system thanks to the development of a system that automated the records associated with it. Discover the Beiragel success story here.

 

Written by:
Openlimits

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