Auditing percentage of completion method

What are the methods of auditing a construction contract?

Depending on the nature of the contract, the methods may include: completion of a physical proportion of the contract work

This practical guidance sets out some of the observations based on the reviewers’ inspection of audits of companies in the construction industry using the substantive audit approach

What is the percentage of completion method?

Revenue, expenses, and gross profit are recognized each period based on the percentage of work completed or costs incurred

The percentage of completion method falls in line with IFRS 15, which indicates that revenue from performance obligations recognized over a period of time should be based on the percentage of completion

When is revenue recognized using the percentage-of-completion method?

Revenue is recognized using the percentage-of-completion method when reliable estimates of the extent of progress toward completion, contract revenues, and contract costs are available

In addition to requiring reliable estimates, the percentage-of- completion method can be used in circumstances in which all of the following conditions exist:

×To audit percentage of completion, you can use the following methods:

Cost-to-cost method: Compare estimated and actual project costs. Percent complete = Total costs to date ÷ total estimated costs. The total percentage of costs that have been incurred is the percentage of completion for the project.
Subtract total estimated contract costs from total estimated contract revenues to arrive at the total estimated gross margin. Measure the extent of progress toward completion, using one of the methods described above.