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Major things to see when doing manufacturing companies audit

ashish (professional) (60 Points)

06 May 2016

company engaged in doing manufacturing of tools & spares parts

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Harshit (CA Job) (27 Points)
Replied 06 May 2016

So, here is the list which you should definitely do on the Audit of Manufacturing Companies:

Visit Plant/factory very first day and understand the process of the products which the Company manufactures. There you come to know about the conditions of the Fixed Assets of the Company as well as the condition of Raw Material, Work in Progress and Finished Goods (which covers major part of your inventory). Fixed Assets and Inventory are the most important and crucial area of the manufacturing entity. Thereafter understanding the process of Sales, Purchases and Valuation of Inventory will let you have good command on the Companies Working.

Now, will stating the major areas you can't afford to ignore:

1. Checking of Sales Cut off. (Take help of Online Tracking System)

2. Checking of Purchase Cut Off (Provision should be made for pending GRN by the Company)

3. Excise reconciliation with Sales (The amount of Sales should be tallied with register as well as from Financials) - Use the registers RG 23A (for Raw Materials) and RG 23C ( for Capital Goods) and ER1. Simultaneously check the balances with Govt. Authority

4. In case of Export, Check the Export Incentives Receivable and Received by the Company during the year.

5. Inventory Valuation : Considering the method of Costing adopted by the Company and compliance with AS 2 by the Company.

6. Fixed Assets Additions and Deletions during the year and Working of Deletions (for calculating profit and loss on sale of assets) - Capitalization of Assets should be in complaince with AS - 10 and with Companies Act as well.

7. Debtors and Creditors - Comparative Analysis of Debtors and Creditors with previous years. If it seems that some debtors are not recoverable, provision for the same needs to check. In case of creditors, the amount no more payable written back need to check.

There are a lot more things to check but this gives you major control over the Company (audit of the Company).

Do share if you find any difficulty.

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