5 Ways to Plan for Your Manufacturing Company’s Yearly Audit

Key Takeaways:

  • Establish year-round financial readiness to smooth the audit process and reduce disruptions.
  • Assess and enhance internal controls regularly to prevent audit issues.
  • Leverage technology for efficient document management and conduct pre-audit reviews.

For manufacturing companies, an annual financial statement audit plays a critical role in maintaining financial transparency and complying with lender requirements. However, the complexities of production, inventory management, and supply chain logistics make thorough audit preparation a necessity. By following these five key strategies, your manufacturing company can streamline the audit process, minimize disruptions, and improve overall financial accuracy.

1. Adopt a Year-Round Approach to Audit Preparation

The foundation for a successful audit is built throughout the year. Your manufacturing company should keep accurate and up-to-date financial records on an ongoing basis — including regularly tracking inventory, production costs, and capital investments. With the volatility in raw material and shipping costs, and the complexities of cost accounting, you should keep detailed records that reflect these fluctuations in real time. By staying audit-ready year-round, your company can keep its financial statements in order and avoid last-minute reconciliations.

2. Assess and Update Internal Controls

Effective internal controls are essential for manufacturing companies, where complex operations can increase the risk of financial misstatements. Regularly assessing and updating your internal controls — particularly those related to inventory management, cost accounting, and supply chain transparency — can help you identify and address gaps that could complicate the audit process. For example, implementing robust controls around the tracking and valuation of inventory helps your financial statements accurately reflect current assets, reducing the risk of discrepancies during the audit.

Graphic showing three key internal controls areas in manufacturing: inventory management, cost accounting, supply chain transparency

3. Engage with Your Audit Team Throughout the Year

Early communication with your audit team can help align expectations and address potential challenges manufacturing firms often face related to areas like cost of goods sold (COGS) calculations, capital expenditures, and compliance with industry-specific regulations. By engaging with your auditors early and often, you can clarify how these elements will be reviewed, discuss any changes in your production processes, and address concerns about fluctuating material costs or supply chain disruptions.

4. Leverage Technology for Documentation Management

The volume and complexity of financial documents can be overwhelming for manufacturing companies. Utilizing technology to organize and manage these documents can significantly streamline the preparation process. Consider implementing an enterprise resource planning (ERP) system that integrates production data with financial reporting. This simplifies inventory tracking and cost management, making all necessary documentation readily available for the audit. Cloud-based solutions also provide secure, real-time access to documents — facilitating collaboration with your audit team.

5. Conduct a Pre-Audit Review

A pre-audit review is a valuable tool for manufacturing companies, allowing you to find and address potential issues before the actual audit begins. Focus on areas like inventory valuations, long-term contracts, and capital investments as these are often the most complex and prone to error. By conducting a thorough pre-audit review, your team can resolve discrepancies, improve financial accuracy, and reduce the likelihood of surprises during the audit. This proactive approach not only saves time but also minimizes the risk of costly adjustments later.

Create a Path to a Smooth and Successful Audit

Proper planning is essential for a successful audit. By implementing these strategies, your manufacturing company can not only meet its audit requirements but also reinforce its commitment to financial integrity and operational efficiency. Remember, the audit process is not just about compliance — it’s an opportunity to refine your financial practices and strengthen the foundation of your business.

How MGO Can Help

With extensive experience working with the manufacturing and distribution industry, we provide private company audit services that address the unique operational intricacies of your business — from inventory management to supply chain complexity. Ready to streamline your manufacturing company’s audit process? Reach out to our team today.

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