| 1 | Related-party purchasing and sales at a high share, with no pricing evidence | Group entities supplying one another is the norm in privately held manufacturing, but almost nobody has kept the pricing rationale. Once an explanation is demanded, there is no same-period, same-specification benchmark to produce |
| 2 | Scrap income never declared | Endemic in electroplating, hardware, machining and injection moulding. Income from offcuts, spent solution and scrapped tooling stays off the books for years, and the accumulated amount carries real risk |
| 3 | Other payables used as an off-book account | The account is carried indefinitely and only ever grows; in substance it is where off-book funds come to rest. It is also the easiest account to see through |
| 4 | Year-end reversals reinstated after the turn | A reversal in December and a reinstatement in January, used to smooth the year's profit. Comparing the voucher journal exposes the pattern immediately |
| 5 | Construction in progress carried across year-end | The building or line has long been in production while the books still show construction in progress, understating depreciation continuously. Usually large, and it compounds year on year |
| 6 | Equipment with no asset card and mismatched documents | Contract, invoice and acceptance record do not agree, and sometimes an entire batch of equipment has no card at all. It bears directly on the supporting file for immediate deduction and accelerated depreciation |
| 7 | R&D expenditure captured without discipline | Personnel hours, material issues and equipment depreciation are captured without support, and the auxiliary ledger is disconnected from the filing schedules. A threat to continued HNTE status |
| 8 | Abnormal input VAT reversal ratio | Input tax on abnormal losses or on exempt activities not reversed as required, or a reversal ratio well away from the industry norm |
| 9 | Inventory does not match the records and cost transfer is distorted | Finished goods received into store diverge from production cost, and the movement reconciliation does not balance. The most central link in a manufacturer, and the most prone to failure |