Question

Explain the audit procedure for checking the Construction In Progress estimate?

Answer 1

Solution:

Audit procedure for checking Construction In progress estimates:

1. Auditors should invest substantial effort in analyzing how companies quantify and allocate their costs.

2. Auditors should analyze the methods used to record cost, and how the company allocates the costs corresponding to each stage of construction.

3. auditors analyze the process to allocate materials, labor, and overhead to each project work in progress if construction is in-house.  

4. The auditor should check consciously the treatment for Depreciation as Cost is being accumulated in work in progress account, depreciation is not charged because assets have not yet put to use in service.

5. If assets under construction are qualifying assets as per IAS 16 - Property Plant and Equipment. Only relevant interest expense on assets is capitalized and must end when assets put to use.

6. Verify is there any assets that are staying in work in progress account longer than it should be to avoid appreciation.

7. Check whether revenue expenses like repair and maintenance are wrongly charged to this account.

8. Apart from this auditors must do audit sampling of the bills and supporting documents based on which cost is recorded in work in progress account.

9. Auditor also checks the Amount bill by vendor on assets construction but not paid.

10. Assets recorded in work in progress must qualify the definition of Accounting standard Property plant and equipment and the company also adhere to the relevant accounting standard like accrual concept.

Based on the above point