Accounting Best Practices, Fifth Edition

16–2. Conduct a Configuration Audit

Companies can run into warranty trouble when their engineering departments design a product correction, but the engineering change never makes its way into the production process. This is also a problem when the engineering changes make it partway through the company to the purchasing department, which orders new components to match the change, but not to the production floor, which assembles products based on the old configuration. This problem leaves the warehouse manager caught in the middle, storing inventory for the new configuration that is not used by the production staff, while running out of components for the old configuration that is still being assembled. The problem is exacerbated if bills of material are not updated for the changes, so that pick lists are incorrect. From the controller’s perspective, the company will experience an increase in its inventory investment, as well as a probable jump in its obsolete inventory levels.

The solution is an ongoing configuration audit, preferably right after an engineering change or a new product is released. Under a configuration audit, an engineer or internal auditor familiar with the product pulls a completed product from the manufacturing line, disassembles it, and compares it to all engineering documents related to the product, including all authorized updates. If the product accurately reflects the current design, then no further action is required. If not, one must verify the accuracy ...