We actively review work in progress (WIP) accounting, to ensure accuracy of calculations and appropriateness of estimates and assumptions made.
This is important, as calculation errors or flawed estimates and assumptions can have a material impact on a licensee’s reported financial position, and compliance with MFR.
Key areas of accounting for construction WIP that we may review are:
- How entities determine their estimated profit margin applied to construction WIP – i.e. QBCC may ask you to identify the estimated profit margin you have applied to individual contracts, and provide support for these figures. We may review historical trends or interrogate aggressive assumptions.
- When and how entities take into account anticipated losses on individual construction contracts
- How the value of total contract consideration was determined, measured and applied
- How any/all approved variations have been incorporated into the calculation of WIP