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How Manufacturers Can Streamline Their Year-End Audit for Maximum Efficiency

As 2025 begins, many manufacturers are in the midst of year-end close and preparing for their annual audit. The annual audit is critical to ensure the financials are accurate and regulatory compliance requirements are met, but it undoubtedly comes with a lengthy to-do list. Although manufacturers may appreciate the auditor’s expertise, the general consensus tends to be, “Let’s get them in and out.” To help streamline the process and make the audit short, smooth, and (dare it be said) even enjoyable, here are some proactive steps manufacturers can take to prepare.

The Basics: Essential Steps for First Timers and Veterans Alike

For those who have experienced audits before, many of the key preparation steps will already be familiar. However, for manufacturers approaching their first audit, here’s a quick overview of the basics.

Planning

It’s important to schedule a meeting with the auditor to discuss the fiscal year’s results, any significant or unusual transactions, and any personnel or accounting policy changes. If this meeting hasn’t taken place yet, it should be prioritized. Early communication helps avoid surprises later on.

Set Expectations

A clear timeline should be established for finalizing audited financial statements. Manufacturers should get clarity on what schedules and reconciliations are needed, when they should be provided, and assign responsibility to the appropriate team members. Setting expectations early ensures everyone is aligned.

Reconciliations

Ensure that all year-end reconciliations are completed, reviewed, and easily accessible. Providing audit requests as soon as reconciliations are finished – ideally even before they are formally requested – can allow the audit team to begin their work sooner, helping expedite the process.

The GOLD Standard: Taking Audit Preparation to the Next Level

For manufacturers aiming to streamline the audit process further and minimize surprises or last-minute stress, several proactive measures can elevate their audit preparation.

Review the Prior Year Audit Results

It’s essential to revisit the findings, adjustments, and recommendations from the previous audit. Being prepared to discuss how management has addressed these issues demonstrates that the manufacturer has actively worked on improvements and ensures they don’t recur in the current audit.

Evaluate Estimates

Manufacturers should review their financial statements for any estimates or judgments and be ready to explain the rationale behind subjective items. Documenting the decision-making process ahead of time helps substantiate calculations. Some key areas to review include:

  • Inventory Reserves for Obsolescence: How was slow moving or obsolete inventory identified? Were any product lines/offerings discontinued? The rationale for determining net realizable value should be explained, and manufacturers should ensure the methodology used is consistent with prior years.
  • Allowance for Credit Losses: Reviewing historical bad debt experience is important. What criteria are used to decide when an invoice should be considered for an allowance? Did the manufacturer consider the overall risk profile of customers?
    • Capitalized variance (if using standard costing for inventory) – How was the variance between standard and actual costs related to year-end inventory determined? Was Days On Hand considered? When were standard costs last updated? What is the nature of the variances (materials, overhead, labor)?
    • Estimated returns – What is the return window? What do historical return patterns suggest? Manufacturers should also consider whether any quality control issues at year-end might affect the rate of returns.
Run Preliminary Covenant Calculations

It’s crucial not to wait until the audit is complete to assess debt covenants. If any covenants are at risk of being violated, long-term obligations may need to be reclassified as current liabilities. Running preliminary calculations allows manufacturers to identify potential covenant violations early, opening a conversation with lenders to determine if a waiver is possible. Taking this step proactively can prevent delays in finalizing the audit.

Conclusion

By implementing these strategies, manufacturers can ensure that the audit process is efficient and less disruptive. Preparing in advance allows the audit team to work more quickly, reduces the chances of last-minute adjustments, and ensures the audit is completed on schedule. With the right preparation, a year-end audit doesn’t need to be stressful – it can be a straightforward, even positive, process.

Please reach out to a member of our Manufacturing & Distribution team for more information on the topic outlined above. For more information regarding our Manufacturing & Distribution experience, visit our Manufacturing & Distribution industry page.

About the Author

Shalane Cohen

Shalane is a Director at McKonly & Asbury. With 20 years of experience, she is a leader in the firm’s external Audit and Assurance Segment serving middle-market, closely held businesses. She assists her clients with financial statem… Read more

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