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Audit & Accounting in Manufacturing and Distribution Sector

Even as manufacturers and distributors experience renewed optimism in their economic outlook, the market continues to grow more complex and competitive. That’s why M&D companies nationwide are relying on Alya’s industry expertise for the support they need.

Whether you’re looking to manage costs and day-to-day core process challenges or explore capital planning options, ALYA can help. Our trusted advisors deliver tailored solutions to help you simplify your life and build on your success. We provide audit, assurance and tax services as well as guidance on hedge accounting, cybersecurity, mergers and acquisitions, business valuations, technology solutions, international tax and succession planning. In addition, our big data and analytics benchmarking services provide valuable information to help businesses control costs and improve performance.

Our experience and resources can help you maintain compliance, stretch your Dirhams and plan for the future.Here are four easy steps to conducting an audit in a manufacturing company.

Inventory Observation

During the initial stage of the audit process, auditors must observe and physically calculate the company’s inventory. This procedure is required to avoid accounting frauds caused by falsification of inventory records.

Often, when auditors observe the inventory, they will use techniques referred to as “floor-to-sheet” and “sheet-to-floor”. Floor-to-sheet is a technique used when the auditor selects items from the warehouse and ensures that all the items selected are included in the record, and sheet-to-floor is when the auditor selects items that have been recorded and ensure that they are physically in the warehouse.

Price Testing

The inventory balance in the company’s financial statements is a function of the amount and value of inventory held by the company. After conducting an inventory observation that focuses more on the quantity of inventory, the auditor must then test the costs on the company’s inventory.

In general, inventory costs are included in the financial statements are lower than the actual costs. The price testing is carried out to verify the costs incurred by the company for materials, labor, and operating costs involved in the production process and inventory management.

To conduct the price testing, the auditor must select items from the company’s inventory and then verify (through analysis of original documentation such as invoices) that the costs are accurately recorded in the company’s financial statements.

To ensure financial statement accuracy, manufacturers need to consider using accounting software. It helps eliminate errors in financial calculations, e.g. double counting. With an automated accounting system, inventory carrying costs can be monitored and controlled more easily.

Result Analysis

After conducting the inventory observation and price testing, the auditor must then analyze the results. From there, they can find out whether there are errors in the company’s financial statements or losses that have been experienced by the company.

If your manufacturing business is big, then an auditor is not enough. A team of several auditors is required to conduct an audit. Because, the bigger the company, the greater the risk of financial irregularities.

Before making conclusions, each auditor must match their results with the results of other auditors. If they find the same errors, then that means the company’s financial statements are not accurate. After that, they will have to perform a deeper examination.

With accounting software, you no longer need to check your financial statements by involving several auditors. A good accounting system can be integrated with other systems, such as an inventory management system. With this integration, you will be able to compare your inventory quantities to their costs through a single system.

Evaluation of the Audit Evidence

After the analysis process is complete, then the auditor must make an evaluation report of all audit activities carried out. The report must be submitted to the party who appointed them to carry out the audit. In this report, the auditor must also provide advice and recommendations that help improve the company’s financial management.

The audit process helps you understand your company’s financial condition more precisely. This can also help you prevent frauds caused by certain people who want to harm your business. 

Get in touch

Get in touch to find out how ALYA’s team of specialists in auditing & accounting for the manufacturers and distribution sector can help your business to grow and succeed in UAE.

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