Getting brewery accounts ready for a statutory audit

Know what the auditor will test

A private limited company must have its accounts audited every year by a chartered accountant. LLPs and partnerships face audit requirements that depend on their size and structure, so ask your accountant which apply to you.

The auditor checks that the accounts give a true and fair view. In a brewery the areas that take most time are stock valuation, excise and tax balances, fixed assets and anything that does not reconcile. Prepare those well and the rest is routine.

Count and value stock at year end

Stock is the single largest source of audit questions in a brewery. Do a physical count on the last day of the financial year, with someone other than the person who keeps the stock records involved. Count:

• Raw materials: malt by bag, hops by pack, yeast, adjuncts and packaging.
• Beer in tanks, measured from dip charts or sight glasses and recorded by tank.
• Finished beer in kegs, cans and bottles.

Value each at cost, not selling price. Beer in tanks is valued at its cost to date. Finished beer may carry excise duty already paid, depending on your state's system. Ask your accountant how duty should sit in the valuation and apply it consistently. Write off malt that has gone stale or hops past their usable date rather than carrying them at full cost.

Reconcile the excise records with production

Your excise register records production, removals and duty. Your production records show brews, transfers and losses. Your sales records show what was sold. All three must tell the same story.

Before the audit, reconcile them for the year. If the excise register shows 48,000 litres produced and your brew log shows 50,000 litres brewed, the gap should match your recorded losses. Unexplained differences invite questions from the auditor and, more seriously, from the excise department. Rules on how losses are recorded vary by state, so follow the current notification for yours.

Keep a fixed asset register

A brewery owns a lot of expensive equipment: brewhouse, fermenters, glycol chiller, kegs, kitchen equipment and fit-out. The auditor will want a fixed asset register showing each asset, its cost, date of purchase, depreciation and current book value.

Kegs need particular care. They are often bought in batches, some are lost each year and many sit with customers. Count them, write off the lost ones and record keg deposits taken from customers as a liability, not as income. Our guide to keg tracking and losses covers the count.

Clear the reconciliations before the auditor arrives

A good audit file has these ready:

• Bank reconciliations for every account, every month.
• Card and UPI settlements matched to till takings.
• Debtors list with ageing and notes on any doubtful debts.
• Creditors list matched to supplier statements.
• GST returns reconciled to the books for food and other taxable sales.
• Tax deducted at source on rent, contractors and professional fees, with returns filed.
• Loan statements matched to the balance sheet.

Each one you clear in advance saves a round of questions and fees.

Watch the cut-off too. Beer delivered to a bar on the last day of March belongs in March sales. A malt delivery received that day belongs in March stock and March creditors, even if the invoice arrives in April. Cut-off errors are among the most common audit adjustments in small businesses. They are easy to avoid if the person receiving goods dates every delivery note.

Treat the audit as a health check

An audit that finds stock shortfalls, unreconciled excise records or missing keg deposits is telling you something about how the brewery runs. Use it. A management letter from the auditor is free advice on your controls.

Breweries that close their books monthly find the year-end audit far easier. Our guide to building a monthly management accounts pack shows how to get there.

Book the stock count date now

Getting audit-ready is mostly a matter of habits through the year: monthly reconciliations, a working stock system and excise records kept in step with production. That is the financial discipline we build with founders in the course.

Your first step: put the year-end stock count in the calendar now, name who will count each area and agree with your accountant how beer in tanks and duty-paid stock will be valued.

Common questions

Does every brewery company in India need a statutory audit?

Every company registered under company law needs an annual audit. LLPs and partnerships depend on size and structure, so check with your accountant.

How should beer in tanks be valued for an audit?

At cost to date, based on ingredients, labour and overheads used so far. Ask your accountant how to treat any excise already paid.

Are keg deposits income?

No. Deposits you hold for kegs with customers are a liability you owe back when the keg is returned.