Cement, Steel and Textile Manufacturer Audit: Costing, Stores and Yield

Audits of cement, steel and textile makers share one centre of gravity: converting bulk inputs into output at a yield, using power and fuel, and carrying large stores, spares and work in progress. The key audit questions are whether the cost per unit is built correctly, whether yield and wastage are real, and whether stores and spares are valued and used as recorded.

Last reviewed: 17 October 2026. Facts checked. We did not run a new web search for this post, because the audit areas rest on general costing and inventory practice, and earlier site posts already cover the general manufacturing audit. We did not open the cost records rules, any cost audit order or any standard for this post. We name laws and standards only, with no thresholds, and any point of law should be confirmed against the current text. Existing site posts were checked so that links point to pages that exist.

What is distinctive about these industries

• Cement. Limestone is mined or bought, burnt in a kiln with fuel and power, and ground. Power, fuel and freight dominate cost, and clinker stock is measured by survey.
• Steel. Iron ore, coal or scrap are converted in furnaces or mills. Yield, scale loss and by-products such as slag decide margin, and finished goods vary by grade and size.
• Textiles. Fibre is spun to yarn, woven or knitted to fabric and processed. Waste at each stage, count and quality mix, and job work with outside processors matter.
• All three run continuously, hold large stores and spares, use heavy plant and depend on power cost.
• Standard costs and norms exist, and variances from them are the first audit lead.

Manufacturing basics are in our post on internal audit for manufacturing companies. This post adds what is specific to bulk and process plants.

Key risks

1. Cost build-up. Wrong allocation of power, fuel, labour and overhead to products.
2. Yield and wastage. Normal loss treated as abnormal or the reverse, and waste sold off book.
3. Stock measurement. Bulk stock estimated by survey, and work in progress valued from percentage assumptions.
4. Stores and spares. Large balances that are obsolete, over-stocked or issued without records.
5. Capitalisation. Repairs capitalised and capital spares handled inconsistently.
6. By-product and scrap. Income omitted or booked below value.
7. Power and fuel. Consumption not tied to production.
8. Job work. Material sent out and not returned in the expected quantity.

Audit programme in steps

Step 1: Map the process

Obtain a flow diagram from raw material to finished goods, with each stage's input, output and expected loss. Note where stock can sit: silos, yards, kilns, mills, godowns and with job workers.

Step 2: Test the cost sheet

Rebuild the cost per unit for a sample period. Trace material, power, fuel, labour and overhead to ledgers and to production quantities. Test allocation keys. Where the company keeps cost records under the cost records rules, compare the cost audit data with the financial figures and explain differences.

Step 3: Test yield and normal loss

Compute yield by stage for several months and compare to norms and history. Review how normal loss is treated in cost and how abnormal loss is charged to the period. Investigate unexplained trends. Use the method in our analytical procedures example.

Step 4: Observe bulk and work-in-progress stock

Attend counts and surveys of bulk stock, with specialist help for volumes. Test conversion factors, moisture or purity allowances and the status of work in progress. Use our stock count procedures.

Step 5: Test stores and spares

Review stores ledger ageing, usage over recent years and issues to departments. Sample issues for authorisation and charge to cost or capital. Review obsolete and slow items and test provisions. Our inventory checklist lists controls to review.

Step 6: Test power and fuel

Reconcile units and fuel purchased to consumption and to production. Check own generation against grid supply, tariff changes and demand charges. Test whether captive generation cost is computed consistently.

Step 7: Test by-products, scrap and waste

Identify all by-products and waste streams, and test that sales are in the books at realistic prices. Compare quantities sold to the expected generation from production. Examine who handles scrap and how weights are recorded.

Step 8: Test capital spend and repairs

Review additions to plant for the nature of cost, and test major repair or relining costs against the policy on component accounting. See the fixed assets checklist.

Step 9: Test job work and outside processing

Confirm material held by job workers and reconcile issues, returns and expected yield. Test job work charges against agreed rates and the tax treatment of the movement.

Step 10: Review tax, subsidies and compliance

Test GST on sales, by-products and job work, input credit on stores and capital goods, and any state incentives or subsidies. Review pollution control and factory licence compliance. Confirm tax points from the law in force.

Common findings

• Cost sheets with allocations that nobody can explain.
• Yield trends with no reasons recorded.
• Large stores balances unmoved for years.
• Scrap sales not tied to production.
• Repair costs capitalised without component analysis.
• Job work balances with no confirmation.
• Power consumption not reconciled to production.

Which Indian rules to check

Name only. Verify current text:

• The Companies (Cost Records and Audit) Rules and the related cost accounting standards, where applicable.
• The Companies Act, 2013 provisions on accounts, audit and the CARO reporting on inventory and fixed assets.
• GST law on goods, by-products, job work and input credit.
• The Factories Act, 1948 and environmental legislation.
• Applicable accounting standards on inventories and property, plant and equipment.

FAQs

Why audit yield?

Yield links input purchased to output sold, so it reveals hidden losses and off-book sales.

How is bulk stock verified?

By survey and measurement with a specialist, plus tests of the conversion factors used.

What is the first analytical test?

Compare power, fuel and material consumed per unit of output by month.

Related Articles

• Internal audit for manufacturing companies
• Pharma manufacturing audit
• Inventory internal audit checklist
• Stock count procedures

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