INV-03

Control Description

On a monthly basis, prior to order settlement, production variances are reviewed by management to facilitate completeness, accuracy, and validity of the recorded production activity.

Risk

Production variances may be inaccurate, incomplete, or invalid, leading to material misstatements in inventory valuation and cost of goods sold (COGS) if they are not reviewed and resolved by management prior to order settlement.

Implementation Details

1- SAP Reporting Tools
S_ALR_87013127 (Production Order Variance Analysis): Standard Information System report used to extract and filter variances by plant, product group, or individual material.

KKBC_ORD (Cost Analysis for Product Cost by Order): Drills down into specific material production orders to evaluate planned vs. actual costs and variance categories.

Fiori App Production Cost Analysis (ID F1780): Modern S/4HANA analytical cockpit enabling filters for materials exceeding specific variance percentage thresholds

2. Review & Documentation Workflow

• Threshold Analysis: Management isolates orders/materials showing significant variances across specific categories (Input Price Variance, Material Usage / Quantity Variance, Scrap Variance, and Lot Size Variance).

• Investigation & Challenge: Management investigates root causes (e.g., bill-of-materials errors, excessive scrap, or outdated standard costs) and documents explanations.

• Formal Sign-Off: Management signs off on the review workpaper, providing the authorization required to release the orders for settlement.

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Test Procedures

A) Test of Design (ToD)

• Inspect the corporate accounting policy or month-end close standard operating procedure (SOP) to verify that requirements for a monthly, material-level production variance review prior to order settlement are formally defined.

B) Test of Operating Effectiveness (ToE)

•Select a sample of monthly closing periods (e.g., two quarters within the audit window) for testing.

• Inspect the completed monthly variance review packages, verifying:

◘ The underlying variance reports were generated directly from SAP at the individual material or production order level prior to the settlement run.

◘ Evidence that management investigated material-level anomalies or orders exceeding established variance thresholds.

◘ Formal, dated sign-off from finance/production management authorizing settlement.