How to Conduct Financial Audit in Manufacturing Firms
We all understand that there is a huge requirement for Financial services such as Audit or accounting and bookkeeping for a business. With the increasing business opportunities in the Middle East, there has been a significant increase in the number of manufacturing industries in the UAE. The manufacturing industry is unique, as it requires a huge amount of capital and expertise to conduct its business. This is the reason for conducting a Financial Audit of a Manufacturing firm is so important.
After conduct in the audit of the manufacturing company, the management will be able to understand the business processes better and will be able to reduce the risk incurred during the production process.
In this blog, we will outline the basic steps to conduct a financial audit of a manufacturing Firm.
- Observation of the Inventory
While conducting the Audit of a manufacturing firm, the auditor must take a count of all the inventory in the company at that present time. This is to be done by the auditor at the initial stage of the audit and is a standard process that is to be followed by the auditor. It is preferred that the auditor should take the physical count of the inventory of the company. This will help in combating any fraud which arises due to the incorrect records of the inventory.
There are two different methods that the auditor can employ to make an observation of the inventory of the company. These methods are:
- Floor to Sheet Method
In this method, the auditor will first check the item present in the warehouse and cross-reference this with the items mentioned in the company’s inventory list. This type of observation technique helps the auditor to know what inventory is present in the warehouse but not mentioned in the list.
- Sheet to Floor Method
The sheet to floor method is the opposite of the previously mentioned method. In this, the auditor will first check the list of the items present in the list and check their presence in the warehouse one by one. This type of observation technique will help the auditor to know if the inventory mentioned in the list is present at the warehouse or not.
- Testing the Price
This is the step in which the auditor checks the cost paid for the different material, labour and other costs by the company. For this, the auditor may refer to the original records or documents for the materials. The management should take care that the companies follow the specified accounting principles during the audit.
- Reserve Inventory
Many of the firms utilise perishables or inventory, which becomes obsolete with the passage of time. The auditor will check this inventory and make sure that the cost of these inventories in the market does not exceed the cost verified in the previous step by the Auditor.
- Final Analysis
The auditor will analyse the data collected in the previous steps of the audit to find out that there is an anomaly in the company’s records. The auditor may observe some material that is obsolete or are wasted. This will affect the audit report of the auditor.
For an unbiased audit of the company, the management should avail the services of a reputed Accounting and Auditing firm in the United Arab Emirates.
After making the complete assessment, the auditor will be able to conduct the manufacturing firm’s audit correctly. He will be in a better position to understand if any fraudulent activity was occurring in the company. Also, the complete analysis of the inventory will also help the auditor to make a complete and wholesome examination and will help the auditor to produce an unbiased and comprehensive Audit Report.
In order to achieve an unbiased audit, it is advised that the management take the assistance of reputed Auditing and Accounting firm. One such Accounting and Accounting firm in the United Arab Emirates is Jaxa Chartered Accountants.
JAXA Chartered Accountants is an ISO 9001:2015 certified firm that will ensure that the business fulfils all the necessary compliance requirements. The experts at JAXA will provide you with the best quality services at an affordable cost. JAXA also provides various other financial services, which will help increase the profitability of the company. For more details on the services, feel free to Contact Us. We will be glad to assist you.
