All manufacturing firms are incumbent in providing an adequate reliance to clients on their quality of products and services. Manufacturing companies should undergo audit procedures to perform in factories in an accountable and controlled manner. Generally, a manufacturing audit can be defined as a comprehensive verifying approach that inspects the manufacturing processes to determine the competency in factory performances and supplement the existing quality control methods effectively. After the procedures have been assessed, matched with standards and ranked, the audit results will be used by the accountant to ensure the accuracy in financial statements and use them for future decision making.
An independent party or an organisation usually carries out a manufacturing audit. Therefore, an unbiased appraisal of the complete financial status and inventory balances of the factory is delivered by them. The audit report will cover asset and liability inspections providing a basis for the manufacturing firm to estimate their financial position in the future. Such statements can offer opinions that are later taken into account by the asset managers and decision-making bodies of the manufacturing firm to align their processes and operations to get better in their line of work.
A Competent Manufacturing Audit Procedure
Agencies assign trained auditors who have experience in the field for their talent in advanced planning, keen observation and knowledge in auditing techniques. A competent audit procedure mainly focuses on announcing firm limitations in advance. It usually focuses more on how satisfactory are the processes of the plant rather than pointing out restrictions in performances. Rating schemes can be used by auditors to prioritise how critically corrective actions must be made in specific factory actions. Also, once a manufacturing dispute is detected, the auditor helps the employees in charge to be aware of the dysfunctionality and shares remedial measures that must be taken.
Why must a manufacturing enterprise conduct an audit?
Manufacturing audits allow factory managers and employees to be sensitive towards operational and manufacturing procedures that they could perform in a better way. Given below are some of the main reasons why a manufacturing company should undergo an auditing procedure.
- It ensures that the factory performances reflect the quality standards that are required to be followed by the factory workers.
- Unravel inaccuracy or mismanagement so that spaces of developing could be recognised beforehand
- The consistency of the daily procedures in the plant can be revealed; this helps in breaking through static behaviours and embrace innovation that supercharges factory performances and profitability.
- Factory employees and managers can reinforce the existing correct actions that they already performing
Audit Procedures in Manufacturing Firms
Audit procedures foster different approaches in compliance with anomaly-free report figures to ensure that the financial reports of the manufacturing companies are free of misstating the financial balances- due to an error or fraudulent activity. These audits must be keenly planned and orchestrated for companies to reach optimal economic benefits.
Inventory Inspections
Auditors are ensuring that no accounting or fraudulent operational behaviours are perpetuated by the employees at any level of the factory. To do this, the auditing officers use a procedural check-up that has two steps. The first step is referred to as “floor-to-sheet”. In this stage, the auditor randomly selects inventory batches in the plant repositories and checks whether they have been counted and recorded in the sheet accurately. Secondly, in the “sheet-to-floor” stage, the auditor will select an inventory batch from the sheet and check whether it is available on the factory floor.
Pricing Evaluating
When evaluating the accuracy of the pricing of inventories in a manufacturing firm, an auditor takes measures in acknowledging the precise quantities and costs allocated in acquiring the stocks. Since the cost of acquiring, preserving and transporting inventory must all be analysed before setting up a market price for units, auditors reassess and shape the best prices for the companies. Manufacturing firms usually indicated understated inventory costs in their financial statements. Therefore, auditors select a batch of inventory and gather all direct and minute costs that were invested for inventory maintenance such as labour cost, electricity cost, rentals, material cost and more and redefine the inventory prices in the financial statements correctively.
Control Testing
The auditor exerts a proactive effort to make sure that all manufacturing processes are under control. Throughout the inventory manufacturing lifecycle, the inventory controls must be assessed in two dimensions; physical transition, movements and transformation on the factory floor and the inventories recognisable in terms of figures and symbols in the book stock or computerised systems. After freezing the factory procedures and system transactions in an arbitrary period, the auditors can align these two dimensions to make sure that the cycle counts and inventory quantities match in actual factory processes and information systems.
Inventory Reserving protocols
Manufacturing firms that store perishable products must consider all testing protocols to keep the inventories healthy and the utility service ongoing without any disputes. Auditors can assess the risk of obsolete units based on the maintenance and the condition of stored assets. Also, all unusual changes in the inventory repositories in the manufacturing company must be having a valid justification in the part of the company. Auditors will inspect all inventory’s warehouses, the conditions of the stored quantities and assess all related costs appropriately. Such data generations in audit reports will be useful in presenting accurate figures in the financial statements when making decisions or providing written statements to pass financial loans or investment requests for expanding storage capacities in the manufacturing plants.
Under-performances in manufacturing operations and processes can be transformed into opportunities if they are adequately managed. Auditors are the medium of understanding the conflicts, limitations and possible developments that manufacturing firms foster. In better understanding how the factory works and how these actions are recorded, the executives can forfend from accounting scandals, error in management, mismanagement, while ensuring accuracy and healthy ethical and legal background for the manufacturing firms. These services can provide high levels of data clarifications, data on the sustenance of the company when competing with rivals, eliminating cost conundrums in the firm and stand in the market confidently with future assurance for productivity and profitability.
