6 ways manufacturers can gain value from an external audit 

A quality audit can reveal opportunities to improve business operations and reduce risks.

Evaluating audit results closely can pay dividends for manufacturing companies. A financial statement audit can reveal hidden opportunities for a company to reduce waste, increase profitability, minimize costly errors, and refine operations.

Senior management and private equity group leaders alike should review the audit report and discuss findings with their independent auditor. They then can use this checklist of major areas of opportunity to explore after the external audit.

• Inventory management
  Errors discovered during the audit, as well as auditor challenges with inventory observation and testing, often point to the need for better inventory management practices. Based on audit findings, management might seek to improve how inventory is physically organized and virtually tracked with scanners and software.

• Inventory counts
  Performing a physical inventory count for an audit can shut down a business for days or longer, hurting revenue and pulling employees away from core tasks. Managers can examine ways to make inventory counts more efficient, more accurate, and less disruptive, such as transitioning to ongoing cycle counts or using automation technologies.

• Inventory costing
  An audit can uncover inaccuracies in how inventory is valued or how input costs (such as freight, labor, and raw materials) are standardized, which can affect forecasts and business planning. Management then can work to improve processes to calculate and track costs, improve profit margins, or make sales processes proceed quicker.

• Inventory controls
  Errors flagged in the audit often point to weaknesses in internal controls. Specific findings from the audit can direct management to review certain processes and controls that need attention to reduce risks and minimize input errors.

• IT systems
  If pulling data for the external auditor (tracking down older invoices, purchase histories, and so forth) is a struggle, management can review whether limited or outdated IT systems are the culprit. Modern enterprise resource planning (ERP) or inventory management systems can provide real-time visibility into sales, revenue, inventory, and more, allowing management to make more informed business decisions.

• Staff capacity
  The audit process can uncover capacity issues. Management can review whether the accounting department is staffed appropriately to handle an audit as well as its day-to-day responsibilities.