Internal audits are essential for every organization, but their importance is amplified in manufacturing companies. Manufacturing involves complex processes, stringent regulations, and substantial resistance, making effective internal auditing even more vital.
Also read: Audit Criteria In Internal Audit
This process ensures operational efficiency, regulatory compliance, and ongoing improvement.
This article will address conducting an internal audit for a manufacturing company.
Steps to Do Internal Audit of a Manufacturing Company
The steps include;
- Define Objectives
- Select the Expert Audit Team
- Create Audit Criteria
- Audit Planning
- Collect Information
- Conduct Interviews
- Perform Field Observations
- Evaluation of Documentation
- Find Domains of Improvements
- Assess Findings
- Develop Remedial Actions
- Report and Interconnect Outcomes
- Follow-Up
Define Objectives
The first step is to define the objective and scope of the audit. Check what characteristics of the manufacturing process you want to inspect, such as;
- Quality control
- Compliance with protocols
- Efficiency of operations
Select the Expert Audit Team
The next step includes selecting entities with appropriate proficiency. Make sure they have the necessary training and qualifications in some manufacturing-related sectors such as;
- Quality management
- Compliance
- Industry background
Create Audit Criteria
After selecting a well-capable team, the next step is to create a checklist or audit criteria as per industry standards, regulatory obligations, and company strategies. This will help to set the appropriate scope for the audit.
Also read: Difference Between Audit Firm and Accounting Firm
Audit Planning
The Audit Planning phase is very crucial. It must outline the timetable, resources required, the extent to be audited, and the duties of team members. It is significant to consider certain factors such as;
- Timing
- Availability of key personnel
- Potential risk associated with entity/operation
Collect Information
The most important step in the process of How to do an internal audit of a manufacturing company is collecting all relevant documents, financial statements, and data linked to the areas being audited.
This may include;
- Production Reports
- Quality Control Records
- Maintenance Logs
- Safety Protocols
- Compliance Records
- Inventory Records
- Training Records
- Financial Records
- Supplier and Vendor Information
- Audit Trail Papers
- Regulatory Compliance Permits
Conduct Interviews
The next key step is to conduct interviews. Talk to the key people engaged in the manufacturing process. It may include;
- Production manager
- Quality assurance staff
- Operators
- Maintenance personnel
Gather perceptions into their parts, tasks, and any problems they may have come across.
Perform Field Observations
Observe manufacturing operations to understand and evaluate standard measures, protection practices, and productivity of processes.
Also read: How to Make an Internal Audit Report
Evaluation of Documentation
Inspect documentation and records to ensure compliance with related standards and protocols. Look for any inconsistencies or breaches that may specify areas of concern.
Find Domains of Improvements
File any nonconformities from set measures, non-compliance with rules, quality issues, protection hazards, or inadequacies detected during the audit.
Assess Findings
Measure the implication of the issues detected based on their possible effect on product quality, protection, compliance, and working performance.
Develop Remedial Actions
the next step is to collaborate with relevant investors or stakeholders to progress remedial and defensive actions to address the identified issues. Establish timelines, roles, and measures for observing progress and efficiency.
Report and Interconnect Outcomes
Make an audit report. It should summarize the findings, decisions, and recommendations in the audit. After that present the report to the administration and related stakeholders after highlighting areas of enhancement and future actions.
Also read: How to Conduct Statutory Audit in UAE
Follow-Up
The final step is monitoring the implementing all the remedial actions and follow up to authenticate their efficiency. Conduct periodic reviews such as weekly or monthly to ensure continuous compliance and constant development in manufacturing processes.
FAQs
What Is the Role of an Internal Auditor in a Manufacturing Company?
Internal auditors inspect and investigate company records and financial statements. They classify issues like compliance, risks, fraud, and data imprecisions.
What Are the 5 C’s of Internal Audit?
Internal audit team reports often follow the rule of the “5 C's” of data distribution and communication, and a detailed summary in a report will include each of these essentials.
The “5 C's” are;
- Criteria
- Condition
- Cause
- Consequence
- Corrective action
How to Conduct an Internal Audit Step-by-Step?
The Most Effective Steps to Perform an Internal Audit efficiently are;
- Make the Audit Checklist.
- Brief the People Involved.
- Record and Examine Audit Findings.
- Examine to Develop and Implement Action Plans.
Conclusion
Understanding the steps involved in conducting an internal audit for a manufacturing company is essential. By setting clear objectives, assembling a skilled audit team, and developing appropriate audit criteria, companies can effectively plan and execute the audit process.
In the competitive UAE market, it's advisable to engage top firms like Farahat & Co., whose experienced team is adept at addressing issues promptly.
Thus, contact us today and we shall be glad to assist you.
