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Auditing construction contracts: Some best practices


One of the more challenging audits is that of construction companies and other companies using the percentage-of-completion method of accounting for long-term contracts.

Much of the auditor’s work involves evaluating subjective estimates relating to future events. AU-C Section 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures, provides guidance to auditors on obtaining and evaluating sufficient appropriate audit evidence to support significant accounting estimates in an audit of financial statements in accordance with generally accepted auditing standards (GAAS).

The Center for Plain English Accounting has identified certain procedures, or best practices, that a construction contractor can expect an auditor to perform when auditing a construction company. They are as follows:

These are a few practices that auditors can consider when auditing construction contracts. Ultimately, auditors need to develop procedures and practices that reflect the results of their planning and risk assessment procedures conducted as part of an audit. – Bob Durak, CPA, CGMA, Director of AICPA Center for Plain English Accounting

Are you a construction contractor and have questions? Get in touch with our accountants and business consultants today. 

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