19 Must-Know Types of Audit in Manufacturing Industry

Understanding the types of audit in the manufacturing industry is the key to ensuring product quality, meeting compliance, or streamlining processes.

Learn with us all the types of audits that manufacturing companies need to undertake. 

Why Are Audits Crucial in the Manufacturing Industry? 

Audits are absolutely crucial in the manufacturing for the following reasons:

Ensuring Safety & Preventing Accidents:
Audits identify hazards, verify compliance with safety regulations, and catch issues early to prevent injuries, downtime, legal trouble, and reputational damage.

Guaranteeing Consistent Product Quality:
They ensure processes are followed correctly, prevent defects, and verify that products meet internal, customer, and industry standards—reducing recalls and protecting brand reputation.

Verifying Regulatory & Legal Compliance:
Audits provide proof of compliance with environmental, safety, and industry regulations, helping avoid penalties, lawsuits, and shutdowns.

Improving Efficiency & Reducing Costs:
They uncover waste, highlight opportunities to streamline operations, and drive cost savings through better resource use and reduced rework or downtime.

Managing Supply Chain Risk & Ensuring Supplier Performance:
Supplier audits assess quality, reliability and ethics, helping manage risk, ensure standards are met, and maintain supply chain stability.

Driving Continuous Improvement:
Audits offer objective insights, generate actionable data, and promote a culture of accountability and ongoing process improvement.

Protecting Against Fraud & Ensuring Data Integrity:
They detect financial and operational fraud, ensure records are accurate, and safeguard data integrity—especially in regulated industries.

Building Customer & Stakeholder Confidence:
Successful audits show commitment to quality and ethics, helping win customer trust and unlock new business opportunities.

Main Types of Audits in Manufacturing Industry 

Manufacturing industries in India conduct different types of audits. Here’s a look at these with their key focus areas and relevance:

Statutory & Regulatory Audits

These types of audits are legally required, with specific formats, frequencies, and reporting requirements.

1. Statutory Audit

Mandated by the Companies Act (2013), this audit verifies financial statement accuracy for manufacturing entities. It ensures reliable reporting of production costs, inventory valuation, and asset depreciation for stakeholders. 

Focus: 

• Compliance with accounting standards (Ind AS/AS) 
• Proper maintenance of books
• Adherence to Companies Act Provisions
• Detection of fraud/errors

2. Cost Audit

Required for notified sectors (e.g., cement, fertilizers), it validates cost records for materials, labor, and factory overheads. 

It is meant to ensure accurate product costing for pricing decisions and regulatory compliance.

Focus:

• Accuracy of cost accounting records
• Adherence to Cost Accounting Standards (CAS)
• Cost ascertainment methods
• Efficiency in resource utilization
• Reasonableness of cost of production

3. Tax Audit

Required under the Income Tax Act (1961) for businesses including manufacturing exceeding specified turnover limits, it verifies income tax compliance. 

They verify manufacturing-specific tax claims like R&D deductions and plant depreciation. 

Focus:

• Scrutiny of books of account & financial records
• Verification of turnover/receipts
• Compliance with TDS/TCS provisions
• Accuracy of deductions claimed (e.g., 80-IA)

4. GST Audit

It is mandatory for manufacturers exceeding ₹2 crore turnover.

It reconciles GST returns with production records. Also, validates ITC claims on raw materials and capital goods.

Focus:

• Reconciliation of GSTR-9 with audited financials
• Eligibility and documentation of Input Tax Credit (ITC)
• Accuracy of tax payments
• Compliance with invoicing and e-way bill rules

5. Environmental Audit

Mandatory for polluting units in ‘Red’ and ‘Orange’ category industries (e.g., chemical plants, tanneries)  under EPA (1986) and Water/Air Acts. 

Its purpose is to assess effluent treatment and emission controls.

Focus:

• Compliance with CTO conditions (effluent/emission levels)
• Effectiveness of pollution control systems
• Hazardous waste management practices
• Resource consumption (water, energy)

6. Factory Compliance Audit

Mandated by the Factories Act (1948) and State Rules, it ensures workplace health, safety, and welfare standards. 

Covers machinery guarding, hazardous process handling, and statutory registers.

Focus:

• Building & machinery safety
• Fire safety equipment & procedures
• Welfare amenities (canteen, restrooms, creche)
• Working hours, wages, leave records
• Statutory register maintenance

Internal & Operational Audits

7. Internal Audit

These are only mandatory for listed/specified companies under the Companies Act (2013). They are conducted by the internal audit department or outsourced to trusted and experienced firms like PKC Management Consulting. 

They review manufacturing controls like purchase approvals and inventory counts. They detect risks in production planning and shop floor transactions.

Focus:

• Effectiveness of financial controls
• Operational efficiency & asset safeguarding
• Fraud risk assessment
• Compliance with internal policies
• IT controls

8. Process Audit

They are driven by management for operational improvement, to examine specific manufacturing/support processes in detail. 

They assess process effectiveness, efficiency, and adherence to defined procedures (SOPs).

Focus:

• Adherence to Standard Operating Procedures (SOPs)
• Process efficiency & resource utilization
• Identification of bottlenecks & waste (time, material)
• Equipment effectiveness
• Output quality consistency

9. Operational Audit

These evaluate the efficiency and effectiveness of entire functions/departments (e.g., Supply Chain, Maintenance). 

Its purpose is to assess goal achievement, resource utilization, and cost-effectiveness of operations.

Focus:

• Achievement of departmental/functional objectives
• Resource utilization (manpower, machines, materials)
• Cost-effectiveness & performance metrics
• Policy compliance & alignment with org goals
• Operational risk management

10. System Audit / IT Audit

Focused on IT controls, it evaluates the security, integrity, and effectiveness of information systems.  Ensures ERP/MES system controls for production data integrity. 

Focus:

• IT Governance & Data Security (incl. DPDP Act)
• Network security & Access controls
• System Development Lifecycle (SDLC) & Change Management
• Disaster Recovery & Business Continuity Planning (DR/BCP)
• ERP system controls & IT Operations

Quality & Safety Audits

11. Quality Audit

Verifies the Quality Management System (QMS) against our customer requirements. They ensure product quality consistency and system effectiveness.

Focus:

• Adherence to QMS requirements
• Effectiveness of control plans & inspection procedures
• Calibration of measuring equipment
• Non-conformance handling & CAPA
• Documentation control

12. Supplier Audit / Vendor Audit

These audits are conducted to ensure suppliers meet the manufacturer’s requirements for quality, delivery, and ethics, mitigating supply chain risk.

Focus:

• Supplier’s QMS effectiveness & process capability
• Production controls & inspection methods
• Delivery performance & financial stability
• Ethical practices & sub-tier supplier management
• Compliance with agreed specifications

13. Product Audit

Examines finished products or key components against defined specifications and standards. 

Focus:

• Conformity to product specifications (dimensional, functional)
• Appearance, packaging, and labeling accuracy
• Compliance with product safety standards (e.g., BIS)
• Verification against customer requirements

14. Safety Audit (EHS Audit)

Assesses the effectiveness of the Environmental, Health & Safety management system. Its purpose is to protect employee health/safety, ensure compliance, and minimize environmental impact.

Focus:

• Compliance with Factories Act safety provisions
• Machine safety (e.g., LOTO), PPE usage, chemical handling
• Emergency preparedness & incident investigation
• Environmental compliance & waste management
• Occupational health hazards

Certification & Standards Audits

15. ISO Audits

Conducted by Accredited Certification Bodies verify conformance to specific ISO standards. 

They are needed to grant or maintain certification, demonstrating commitment to quality, environment, safety, or other management systems.

Focus:

• Conformity to all clauses of the specific ISO standard
• Effectiveness of the implemented management system
• Evidence of continual improvement
• Compliance with legal and other requirements
• Internal audit & management review effectiveness

Special Audits

16. Energy Audit

Mandatory for Designated Consumers under the Energy Conservation Act (2001), it identifies energy saving opportunities. Conducted by BEE-Accredited Energy Auditors, its purpose is to improve energy efficiency and reduce consumption/costs.

Focus:

• Mapping energy consumption per process/equipment
• Identifying energy losses & inefficiencies
• Recommending cost-effective conservation measures
• Assessing compliance with BEE standards/PAT scheme

17. Inventory / Stock Audit

Verifies the physical existence, condition, and valuation of raw materials, WIP, and finished goods. 

Focus:

• Physical verification of stock quantities
• Condition assessment (obsolescence, damage)
• Valuation method application (FIFO, Weighted Avg)
• Reconciliation between physical stock and records (ERP/WMS)
• Warehouse management controls

18. Forensic Audit

Investigates suspected fraud, financial misconduct, or disputes using accounting/auditing skills. 

Focus:

• Tracing funds & identifying fraudulent transactions
• Gathering documentary evidence
• Quantifying financial losses
• Assessing internal control failures
• Supporting litigation/arbitration

19. Social Compliance Audit

Assesses compliance with labour laws and human rights standards . Conducted by Customer reps or specialized third-party firms.

Focus:

• Child labour & forced labour
• Freedom of association & discrimination
• Working hours & wages (incl. minimum wage)
• Health & safety conditions
• Disciplinary practices & grievance mechanisms

Suggested Frequency of Audits for Manufacturing Companies in India

How Can PKC Assist Manufacturing Companies in Audits? 

✅Tailored audit plans addressing specific manufacturing risks 

✅Manufacturing-specific inventory management audit expertise 

✅Complete raw materials to safety protocols coverage

✅Complex costing systems audit specialization available 

✅Multi-industry compliance audits across manufacturing sectors 

✅Operational integrity audits ensuring business transparency

✅Practical business growth suggestions beyond audit findings 

✅Transparent competitive pricing for audit services 

✅Tech-enabled audit solutions with digital transformation support

Frequently Asked Questions

1. What are the main types of audits in the manufacturing industry in India?

India’s manufacturing sector commonly undergoes statutory audits, tax audits, cost audits, internal audits, quality audits, and safety audits. These audits ensure legal compliance, improve efficiency, and maintain product quality.

2. How often should manufacturing audits be done?

It depends on the type, but internal audits should happen at least quarterly, and statutory/tax audits are usually annual. ISO and safety audits may be yearly or biannual.

3. Who conducts manufacturing audits?

• Statutory/Tax/Cost Audits: Qualified Chartered Accountants or Cost Accountants registered with ICAI/ICMAI.
• Internal/Management/Process Audits: Often done by internal teams or third-party consultants like PKC.
• Quality/Environmental/Safety Audits: Conducted by certified auditors or agencies (e.g., ISO auditors, environmental consultants).

4. Are audits compulsory for MSMEs in manufacturing?

While statutory and tax audits apply based on turnover thresholds, internal and quality audits are often optional but recommended for operational improvement and certifications.