Audit & Assurance for Auto Dealerships

Vehicles are the largest asset on most dealership balance sheets, and most of our fieldwork goes there.

When inventory is material to the financial statements we are required to attend the physical count, and the auditing standards single out automobile dealers as a business that often hires an outside inventory-taking firm. That firm’s report does not by itself give us sufficient appropriate audit evidence, which is exactly why we show up. Attendance is excused only where it is genuinely impracticable, and general inconvenience to the auditor expressly does not clear that bar.

We observe the count across new, used, demonstrator, loaner, and wholesale units, and we identify units by vehicle identification number rather than stock number, because the VIN is the identifier your title, your flooring, and the manufacturer all use. Whether a demo or a loaner sits in inventory or in fixed assets turns on temporary versus permanent company service, which is a policy question rather than a mileage rule, so we test it against how the units are actually used.

Units get traced in both directions: from the lot to the inventory listing, and from the listing back to the lot. A unit on the schedule that nobody can produce is the finding that matters. Where you count at a date other than year-end we add roll-forward procedures over everything that moved in between, and where attendance genuinely is impossible we run alternative procedures, modifying the opinion if those still cannot produce sufficient evidence.

We then reconcile the inventory listing to the floor plan lender’s schedule of units financed and test curtailment, the additional principal reduction beyond ordinary amortization that your bank or manufacturer agreement sets, against the terms actually written. Not every floor plan runs on trust receipts, so we work from your documents rather than a template.

That reconciliation is where units delivered without the flooring paid off surface. Bank guidance frames selling out of trust two ways: the dealer did not pay for sold inventory within the required time frame and owes more than its available cash, or the lender simply cannot link contracts in transit to the sold units. Floor plan debt exceeding inventory is the analytic that flags it, unless the gap is explained by sales, factory receivables, or contracts in transit. The regulator pointedly declines to put a number on that time frame, so we read your agreement rather than assume one, and we raise what we find the day we find it. Lenders run their own floor plan checks at least quarterly through bank staff or an approved vendor, which is a collateral verification on their behalf rather than a financial statement audit.

Consigned units, vehicles held for another rooftop, units in transit from the factory, and cars out on extended demonstration all get identified separately, and where inventory sits with a third party we confirm it with the holder or inspect it ourselves.

Used inventory carries the valuation risk. We test aging, review the write-downs recorded to net realizable value, and compare them against what those units actually brought at auction or retail after year-end.

The finance and insurance office produces a large share of dealership gross, and almost all of it turns on judgment about how much of the money you get to keep.

The first question is whether you are the principal or the agent. When you sell a third-party product such as an extended service contract, GAP, or credit insurance and the third party is obligated to perform, the answer under ASC 606 is usually that you recognize the net commission you retain rather than the gross selling price of the product.

That distinction moves the top line materially, so we test it against the actual contracts and obligor language rather than against how it has always been booked.

Finance reserve and dealer participation income carry a chargeback right, which makes them variable consideration constrained to the amount where a significant reversal is not probable. The mechanic is a refund liability recorded in the same period as the revenue and sized on your own chargeback history.

So the chargeback reserve is the estimate that matters. We test it against your own cancellation and early-payoff history by product and by lender, not against an industry rule of thumb someone quoted at a twenty group.

Retrospective testing does most of the work. We compare the reserve management recorded in an earlier period against the chargebacks that actually came through, then ask why the two diverged.

Manufacturer incentives, holdbacks, and floor plan credits get their own look, since consideration received from a vendor is generally a reduction of cost rather than revenue unless it buys a distinct good or service. Warranty and advertising-assistance receivables carry their own risk, because the factory can audit those claims and charge them back, within limits set by state law rather than by the manufacturer, and the states differ structurally, some capping how far back an audit may reach and others how often one may happen.

Chargeback reserves, service contract cancellation reserves, and factory receivable allowances are all accounting estimates, so each one gets the same discipline: understand how it was built, test the history behind it, and ask whether the answer conveniently landed where management needed it.

Cut-off around year-end gets tested as well, because deals written in the last days of the period and funded in the next one move both revenue and receivables.

A dealer group is rarely one company, and almost every hard reporting question starts there.

Entity structure varies, and the pressure usually comes from lending rather than from the factory. Floor plan lines are frequently written to a specific borrower entity and secured only by the units that particular lender financed, so the borrowing structure ends up dictating what has to be reported separately.

Scope comes first. We establish which of those companies belong inside the reporting entity, which are variable interest entities, and which common-control arrangements a private company has elected to leave out of the consolidated statements.

Elimination comes second. Rent charged between affiliates, management fees, vehicle trades from one rooftop to another, and notes running between the stores and the property companies all come out of the consolidated numbers, and whatever survives that has to appear in the related-party footnote.

That footnote is not optional, and floor plan lenders read it first, because rent set below market by an entity the dealer principal owns makes a store look more profitable than it is.

Leases are third. ASC 842 took effect for private companies with fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. It moved operating leases onto the balance sheet as a right-of-use asset carrying a matching lease liability.

Dealership real estate is very often leased from an entity the dealer principal also owns. A private company may elect to account for a common-control arrangement on its written terms rather than having to determine whether those terms are legally enforceable, which means the arrangement has to actually be in writing.

An affiliated reinsurance entity is the fourth piece, and it raises its own scoping question. We settle how it is treated before the group statements are issued rather than midway through fieldwork.

Credit agreements often ask for several cuts of the same numbers, including a consolidating balance sheet carrying subtotals for each subsidiary before intercompany eliminations, plus combined statements covering only the stores under one brand, and we also issue standalone statements for a single rooftop when a buy-sell requires them.

Dealerships cross the benefit plan audit line more often than other businesses their size, because sales and service headcount turns over and a group plan pools every rooftop.

Once a plan is a large plan for Form 5500 purposes, audited financial statements have to be attached to the filing. The line sits at 100 participants, and the way you arrive at that number was rewritten.

Beginning with plan years that started on or after January 1, 2023, a defined contribution plan looks only at participants who actually held an account balance on the first day of the plan year, instead of counting everyone who was eligible.

For a dealership that change is significant. Salespeople and technicians who were eligible but never deferred no longer push the plan over the line, and some groups that had been filing as large plans no longer have to.

The 80-120 participant rule is worth checking as well. Provided a Form 5500 was actually filed for the prior plan year, it lets a plan stay in the category it filed under then while the count moves around the threshold, so an audit is not automatic the first year you tick over.

If the plan does need one, an ERISA Section 103(a)(3)(C) audit narrows our testing of investment information that a qualified institution has certified. Dealers still call it a limited scope audit; what it produces now is a two-part opinion rather than the old disclaimer.

Our testing covers eligibility, contributions, distributions, participant data, and the operational provisions of your plan document, and we flag operational failures early enough to correct them.

Payroll is where dealership plans break. Commission, spiff, and bonus pay have to match the compensation definition in your plan document, and where they do not, the correction reaches back into prior years.

We pull from your recordkeeper and trustee reporting and work alongside your third-party administrator, and we finish in time for the report to go out with the Form 5500, extended deadline included where you have filed for one.