If you’re in the construction industry, chances are you always have a project you’re working on and another project in the pipeline. For contractor accounting and audits, it’s important to track expenses and project timelines by regularly updating your construction work in progress reports and profit and loss statements.
Let’s dive into what construction-in-progress accounting reporting is and why it’s necessary during an audit. We will also share a few best practices to help you accurately maintain your reports for easy engagement.
What is a Construction Work in Progress?
A construction in progress report (or CIP) outlines a current project’s completion status, incurred costs, and the overall project budget estimation. It’s a detailed overview of your project’s incoming and outgoing expenses to help you track your overall financials, and they’re a critical component of your company’s balance sheet.
CIPs show numbers for:
- Current contract value
- Estimated costs at completion
- Estimated gross profit
- Costs incurred
- Percentage of your project that is complete
- Earned profit
- Total amount billed
CIPs help provide financial clarity and project profitability. Plus, they play a crucial role in construction in progress accounting and auditing.
The Role of CIP in Audits
When you undergo a construction audit, you’ll need to provide your auditing firm with your CIP sheet. This document helps your audit partner:
- Determine revenue recognition or when your project is expected to be completed.
- Understand cost allocations, including labor, materials, and overhead.
- Project profitability, or when you can expect a return on your investment and how much.
- Ensure compliance with GAAP and regulatory requirements.
- Test your internal controls.
What are the best practices for CIP reporting to showcase construction work in progress?
It can be challenging to maintain your CIPs, especially if you’re in the midst of an important project and work is moving quickly. However, taking the time to implement a few best practices for CIP reporting to avoid audit pitfalls and common CIP mistakes, like misrepresentations in project completion estimations or over and underbilling your projects, is a smart idea.
Consider these best practices:
- Align your CIP reporting with GAAP or IFRS standards.
- Use the percentage-of-completion or completed-contract accounting methods.
- Maintain a detailed, organized project cost record.
These best practices help ensure your documents align with industry standards and ensure a smooth construction audit.
Our Construction Accounting Services
At Assurance Dimensions, our construction reviews and audits provide you with assurance over the financial information needed to increase your bond capacity, influence your surety, and grow your business.
Scott Mattson, CPA and Partner at Assurance Dimensions, best describes our construction accounting services and how we serve you and your best. He said, “Understanding our clients’ business models is at the core of what we do. This personalized approach allows us to build strong relationships, deliver accurate audits, and ensure compliance with changing financial standards—making us a trusted partner for businesses year after year.”
To provide you with the most accurate and efficient engagement, we have the capacity to work with you remotely through our secure cloud-based software. Allowing you to manage your business without intrusion.
We perform dozens of construction and contractor reviews and audits annually for repeat clients because we offer personalized service, industry expertise, and uncompromising integrity. Contact us today to learn more about our construction accounting services.