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Audit of a construction company?

Ashish Sablok (B.Com(H),CA Final) (132 Points)

23 September 2011

what special points shoukd be considered while conducting audit of a construction company?

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4 Replies

CA SUMiT PATWARi (Chartered Accountant) (1441 Points)
Replied 16 October 2011

Analyse the works company carry out and the kind of jobs the company undertakes.

Analyse the accounts records maintained by company, its system of accounting, accounting policies, standard operating practices, etc. Understanding the business of the client (indepth) will help you understand the key areas and in the course of understanding only you will come to knwo about the "risk areas" in a construction company audit.

Sub-divide the works of the company into various small segments - for example for one multi storey bldg project, break each activity of the project to be analyse, audited and commented upon.

You will be able to draft an audit programe, review it and finalise the audit programe... its a continuous process. you can modify the audit programme as and when the audit progresses.

Concentrate on the areas like :-

Revenue recognition (very important)

Work Completion certificates

Realisation of money dues

Government clearances ; various permits ; allowance for the comstruction to be undertaken (all these are very important)

Land Deeds and whether construction is permitted on such land

Stock valuation and controls

Terms of Agreements executed, clauses of agreement and their fulfillment.

Provisions to be made

Statutory compliances are always important

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suneet (CA FINAL) (421 Points)
Replied 24 October 2011

And also ensure comlpiance of Service Tax

Kolluru Krishna Murty (Partner) (315 Points)
Replied 29 December 2011

1.Even most important is cross transactions between Developer co and SPV's.

2.BRS of all co's and ajustments between the co's are also important.

kkm

Yogesh Shah (Managing Corporate Finance) (1051 Points)
Replied 04 January 2012

Hi Ashish,

In last year, around by Sep 11 end, I got a chance to do an audit of one construction company (not a full fledge audit but limited one since due date of Income Tax return was near). I am sharing such points which I checked while auditing :-

First of all ALL CASH RELATED TRANSACTIONS. SOURCES OF RECEIPTS AND THEIR UTILISATION. All money which they have paid 'under the table' shall not be taken into consideration (to avoid future complications from Income Tax dept)

Second, check how they have accounted their assets (e.g. advances for land etc.), creditors (consideration for land payable etc.) and WIP.

YOU HAVE TO REFER ORIGINAL AGREEMENTS AND ASCERTAIN WHETHER THEY HAVE ACCOUNTED IT PROPERLY.