In manufacturing the accounting risk concentrates in inventory, and inventory risk concentrates in the standards. A standard cost set two years ago and never revisited will value stock at a number nobody can defend and will make loss-making lines look profitable.
Absorption is where it goes wrong
Overhead absorbed at a rate based on a volume assumption the business no longer achieves. Where actual volume falls below the assumption, unabsorbed overhead sits in stock rather than in the profit and loss account, and the balance sheet quietly overstates. Variances that are large, persistent and in one direction are not variances, they are a standard that needs resetting.
The distributor network is a receivables book
Credit limits set when the relationship began, never revisited, and concentrated in a small number of distributors. Add returns, rebates and promotional credits settled by offset rather than by payment, and the receivable balance becomes difficult to age and harder still to provide against properly.
Promotional goods and free issues
Product given away in promotions, samples and trade support has a VAT and a costing consequence, and it is frequently recorded as neither a sale nor a cost of promotion. Where the volumes are material, the effect on both margin analysis and indirect tax is real.
Counting stock in several places at once
A count that happens on different days in different locations is not a count, it is a series of estimates linked by assumptions about movement. Simultaneous counting, with cut-off documented at each location, is the only version an auditor can rely on without extensive additional work, which you pay for.
Reset it, or the balance sheet overstates
How multi-location stock has to be counted
VAT, NHIL and GETFund all deductible from 2026
Findings
What we find in manufacturing and distribution
Inventory and receivables account for most of it, which is unsurprising, because they account for most of the balance sheet.
- Standard costs not revisited, with absorption based on volumes no longer achieved
- Unabsorbed overhead capitalised into stock rather than expensed
- Distributor credit limits set at onboarding and never revisited
- Rebates and promotional credits settled by offset, making ageing unreliable
- Promotional goods and free issues recorded as neither sale nor promotion cost
- Stock counted on different days at different locations
- Slow-moving and obsolete stock identified but not provided against
- Import duty relief claimed without the legal basis being traced
Services
What manufacturing clients use us for
Audit and stock work lead. The costing and contribution analysis usually follows once the first management letter lands.
Statutory audit
Inventory valuation, absorption, cut-off and distributor receivables.
Explore →Business strategy
Contribution by product line, and which lines are subsidising the rest.
Explore →VAT and indirect taxes
Input tax recovery, promotional goods and the 2026 changes.
Explore →Internal controls review
Stock movement authority, credit approval and rebate settlement.
Explore →Questions
Questions from manufacturers and distributors
How should stock be counted across several locations?
Our production variances are large. Is that a problem?
How do we handle promotional goods for VAT?
Does the 2026 VAT change help us?
Next step
Tell us when you last reset your standard costs.
If the answer is more than a year ago, that single question usually explains most of what is wrong with the reported margin.