Sunday, January 12, 2014

Audit of Fixed Assets - Construction-in-Progress

At the end of the financial year, our audit client may have certain construction-in-progress that has not been completed as of year-end. For instance, audit client may be expanding its warehouse, and the construction is still in progress at year-end. What are the items or elements we need to take note relating to the audit of construction-in-progress?

We have summarized a number of factors that we will discuss in-depth:

a) Nature of the Construction-in-Progress
b) Completion status of the Construction-in-Progress
c) Billing status and capitalisation status
d) Commencement date of the construction and expected completion date
e) Intended use of construction-in-progress
f) Impairment assessment of construction-in-progress
g) Useful life of this asset upon completion

Explanation on (a): It is important to under that the nature of the construction in progress and its intended purpose. An understanding of such construction will assist the auditor to understand the Company's strategy, operational decision etc. It is also important for the auditor to know the budgeted amonut of such asset.

Explanation on (b) : Understanding of the completion status of construction-in-progress allows the auditor to form an expectation on the amont to be capitalised at year-end. It is also fundamental for the auditor to sight the physical construction-in-progress to test that the physical progress is not materially different from management's representation, if applicable. Nevertheless, the status of construction-in-progress can be certified by external party. For instance, a quantity survevor may certify the status of completion of a physical warehouse expansion.

Explanation on (d) : Commencement date of the constrution-in-progress indicates if the project is on-track. Focus need to be given for those long standing constrution-in-progress. For instance, if a project expected to be completed 6 months remain in the Construction-in-progress list warrant auditor's investigation.

We will discuss note (c) , (e) , (f) , (g)  in our subsequent post. Please feel free to contact us at

No comments: