Auditing a manufacturer's work in process

How to audit a manufacturing client's work in process: what sits in it, stage of completion, standard versus actual cost, overheads and common errors.

By Achekam · 11 October 2026 · 5 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya

Raw materials can be counted and agreed to invoices. Finished goods can be counted and agreed to selling prices. Work in process sits between the two, half-made and hard to value, and it is where a manufacturer's inventory figure is most often a matter of opinion. A furniture factory's partly upholstered sofas, a food processor's batches in the tanks, a printer's jobs on the press: each has absorbed some materials, some labour and some overhead, and someone has to decide how much.

This article covers how to audit work in process for manufacturing clients in South Africa, Nigeria and Kenya: what belongs in it, how far each item has progressed, the cost basis, the overheads, and the errors that come up most.

What sits in work in process

AccountingTools defines work in process as goods in production that have not yet been completed, sitting between raw materials and finished goods in the production flow. It notes the term is also known as work in progress, or WIP.

Start by understanding the client's production flow. Walk the factory with the production manager and ask:

• Where does production start and finish, and where are the stages in between?
• How is a batch or job identified as it moves through the stages?
• What records are kept at each stage: job cards, batch sheets, production reports?
• When does an item move from work in process to finished goods in the records?

Without that picture, the team cannot judge whether the work in process at the count matches what the records say.

Percentage of completion and costs added

AccountingTools explains that work in process is valued at the end of a period based on its percentage of completion, typically including the full cost of raw materials plus direct labour and overhead added in proportion to the work done.

That gives the audit two things to test:

1. The stage of completion. At the count, note the stage of a sample of items or batches. Compare with what the production records say. Ask the production manager, not the accountant, how complete each is.
2. The costs attached. For the sample, agree material quantities to the bill of materials and issues from stores, labour to time records or standard hours, and overhead to the absorption rate.

AccountingTools also describes the entry that builds work in process: raw materials move from the raw materials account, and direct labour and factory overhead from the overhead cost pool, into the work in process account. Following those transfers in the ledger for a period is a useful check that the system works as described.

Standard costs versus actual costs

AccountingTools explains that standard costs are easier to use for work in process accounting but are less precise than actual costs, especially if the standards are inaccurate or production is significantly inefficient.

Many manufacturers use standard costs. If the client does:

• Find out when the standards were last updated. Standards set several years ago, before input prices changed, can be far from actual cost.
• Review the variances. Large or persistent variances between standard and actual cost mean the standards are wrong, and inventory at standard is misstated.
• Check what happens to variances. Some should be allocated to inventory and some expensed; a client that expenses all variances while standards are far below actual cost understates inventory.

Overheads included in cost

IAS 2, as the IFRS Foundation summarises it, includes in the cost of inventories the costs of purchase, costs of conversion, meaning direct labour and production overhead, and other costs of bringing the inventories to their present location and condition.

Production overhead belongs in cost; other overhead does not. Test the client's overhead pool:

• agree the costs in the pool to the ledger;
• check that only production-related costs are included: factory rent, power to machines, production supervision, depreciation of plant;
• remove selling, administration and abnormal costs if the client has included them;
• recompute the absorption rate and check the basis of activity used to spread the overhead, since absorbing overhead on a low level of activity overstates the cost of each unit.

Recording observation and adjustments in Achekam

In Achekam, the Inventory Observation screen keeps the count team's work, including the stage-of-completion notes from the factory floor, against the chosen engagement. Its ISA badges are labels; they do not show that a standard has been met.

AccountingTools notes that work in process should be updated continuously in a perpetual inventory system, and is typically updated at the end of each period from physical counts and cost summaries in a periodic system. Find out which the client runs. Under a periodic system, the count and the cost summary are the whole basis of the year-end figure, so the observation notes carry more weight.

The work in process line in the lead schedules is built from the engagement's trial balance, each figure traceable to its lines. Where the testing shows overstated completion, outdated standards or non-production overhead in cost, staff record an audit adjustment on the line with a reason and raise a finding from the working paper, closed or withdrawn later. Our guide to inventory count attendance covers the count itself.

Common errors

Errors that tend to recur in a manufacturer's work in process:

• Stage of completion overstated, often by applying a standard percentage to every item regardless of where it actually is.
• Finished goods left in work in process, or the reverse, around year end.
• Out-of-date standard costs, with variances expensed.
• Non-production overhead absorbed, such as head office costs or selling expenses.
• Spoiled or abandoned jobs still carried at cost.
• Cut-off errors between materials issued, work in process and finished goods.

Work in process is also subject to the lower of cost and net realisable value test, like any other inventory. A batch whose cost to complete exceeds what it will sell for needs writing down; our article on inventory valuation covers that test.

AccountingTools' explanation of work in process accounting covers valuation, the journal entries and the standard cost question, and is a practical brief for staff new to manufacturing clients.

Before your next manufacturing count, ask the client for its cost build-up for two or three products and the date the standards were last updated. Those two documents decide where the work in process testing needs to go.

General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.