Audit of a manufacturing company
Cost of production, consumption standards, work in progress
Go to the «Voluntary audit» serviceChecked against the official source:
In manufacturing, the key audit question is whether product costing is correct. An error in cost allocation is not directly visible in the income statement, but it distorts both inventories and profit at the same time.
Cost of production: what is tested
- components of the cost of inventories: purchase, conversion (direct labour and production overheads), delivery (IAS 2 — for IFRS financial statements);
- allocation of indirect costs and consumption standards;
- work in progress and defective output;
- shortages with no identified responsible person do not reduce corporate profit tax (Article 317 of the Tax Code).
What is tested
- The costing method and how consistently it is applied
- Raw material and supplies consumption standards, deviations from them and their justification
- Allocation of indirect production costs
- Measurement of work in progress
- Accounting for defects, waste and returnable materials
- Accounting for finished goods and their transfer to the warehouse
Where errors occur most often
Allocating general production overheads on an outdated base is the most common problem. The base was set up for one production structure, the product mix has since changed, but the method has stayed the same: the cost of individual products is distorted in both directions.
Review production accounting
We will check product costing and the accounting for work in progress.
Go to the «Voluntary audit» serviceFrequently asked questions
Does the auditor check technical production standards?
The technical soundness of standards is established by industry specialists. The auditor checks whether approved standards are applied consistently and how deviations from them are explained.
What is included in the cost of products under IFRS?
Costs of purchase, costs of conversion — direct labour and production overheads — and other costs incurred in bringing inventories to their present location and condition (IAS 2).
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