Contractors and developers running long projects on estimates and retentions.
Revenue recognised over the life of a contract rests on the measurement of progress and the estimated cost to complete. Both are revised as the job proceeds, and both are judgements an auditor will test.
Retentions held back until defects liability expires, mobilisation advances, and claims for delay or variation often make up a substantial part of the balance sheet. Their recoverability is a question of fact and contract, not of policy.
Accounting and reporting
- Contract revenue and the measurement of progress
- Work in progress, unbilled revenue and amounts billed in advance
- Retentions, mobilisation advances and their recoverability
- Cost allocation across projects and the treatment of site overheads
- Plant, machinery and site equipment, including transfers between projects
Regulatory
- GST on works contracts and construction services, and the credit position
- Tax deduction at source on contractor and subcontractor payments
- Liquidated damages, penalties and claims under the contract
- Sector approvals and registrations relevant to the project
Internal controls
- Project-wise budget against actual cost, reviewed periodically
- Certification of work done before a bill is raised
- Controls over site stores, materials issue and wastage
- Subcontractor bill approval and retention tracking
Questions that arise
- Are estimates of total cost reviewed each period and revised on evidence?
- Are onerous contracts identified and provided for?
- Are retentions and claims assessed for recoverability, contract by contract?
- Is material issued to site reconciled against work actually certified?