Field Examination

Asset Inspection

Physical asset checks occur unannounced at operating facilities to prevent manipulation of stock levels. Auditors count raw materials, work in progress, and finished goods on the warehouse floor, reconciling those physical units against perpetual inventory ledgers. Discrepancies between physical counts and accounting records trigger secondary reconciliations of shipping logs and receiving docks.

Production equipment receives visual checks for rust, obsolescence, or cannibalization of spare parts. Operators must halt loading docks during the audit window to freeze inventory movement and prevent double counting of goods in transit.

Ledger Verification

Financial reconciliation matches physical findings against general ledger balances and borrowing base certificates. Auditors trace accounts receivable through customer invoices, shipping documents, and cash receipts to eliminate fictitious or uncollectible accounts. Payable accounts undergo similar tracing to verify that outstanding liabilities match supplier statements and payment disbursements.

Discrepancies between reported collateral values and audited totals require immediate adjustment of the borrowing limit. Lenders freeze further credit draws if the calculated borrowing base drops below total outstanding loan balances.

Audit Timing

Early deployment of this audit protocol prevents catastrophic losses from phantom inventory and inflated accounts receivable. Calling the examination too soon after facility startup yields unrepresentative pilot data rather than sustained production output. Waiting until default occurs renders the exercise pointless because diverted assets have already left the premises.

Auditors balance operational disruption against fraud detection by timing visits during peak manufacturing cycles. Accurate collateral assessment depends entirely on observing actual manufacturing throughput under normal operating conditions.