Podcast
Questions and Answers
The establishment of a contractor's office at the job site is not necessary for construction projects.
The establishment of a contractor's office at the job site is not necessary for construction projects.
False
Contractor's accounting work at the job site may include payroll, labor distribution records, and purchasing functions.
Contractor's accounting work at the job site may include payroll, labor distribution records, and purchasing functions.
True
The temporary offices at job sites have no impact on the accounting and internal control systems.
The temporary offices at job sites have no impact on the accounting and internal control systems.
False
Payroll padding and loss of construction equipment are common problems in the construction industry.
Payroll padding and loss of construction equipment are common problems in the construction industry.
Signup and view all the answers
Some large contractors have separate marketing departments responsible for auditing accounting records at job sites.
Some large contractors have separate marketing departments responsible for auditing accounting records at job sites.
Signup and view all the answers
The auditor should not review the reports from the internal audit department during the audit period.
The auditor should not review the reports from the internal audit department during the audit period.
Signup and view all the answers
The auditor should obtain the schedules of the construction in progress to test contract price, costs incurred, and percentage of completion.
The auditor should obtain the schedules of the construction in progress to test contract price, costs incurred, and percentage of completion.
Signup and view all the answers
Terms of payment are not important for the auditor to consider when reviewing major contracts.
Terms of payment are not important for the auditor to consider when reviewing major contracts.
Signup and view all the answers
Cancellation features are typically not included in construction contracts.
Cancellation features are typically not included in construction contracts.
Signup and view all the answers
Unusual contract features can include penalties for early completion.
Unusual contract features can include penalties for early completion.
Signup and view all the answers
Bonding and insurance requirements are not relevant for auditors when reviewing major contracts.
Bonding and insurance requirements are not relevant for auditors when reviewing major contracts.
Signup and view all the answers
Equipment rental provisions are not considered significant in construction contracts.
Equipment rental provisions are not considered significant in construction contracts.
Signup and view all the answers
It is important to audit the materials and supplies used in construction to accurately compute the gross profit.
It is important to audit the materials and supplies used in construction to accurately compute the gross profit.
Signup and view all the answers
Problems often arise in construction projects due to excess materials on contracts.
Problems often arise in construction projects due to excess materials on contracts.
Signup and view all the answers
Contractor's receivables include only amounts currently receivable on completed contracts.
Contractor's receivables include only amounts currently receivable on completed contracts.
Signup and view all the answers
Contractor's accounting records should have separate accounts for retention receivables and completed contract receivables.
Contractor's accounting records should have separate accounts for retention receivables and completed contract receivables.
Signup and view all the answers
Contractor's receivables are not aged at the end of the reporting period.
Contractor's receivables are not aged at the end of the reporting period.
Signup and view all the answers
Delinquent accounts in contractor's receivables should not be carefully reviewed and discussed with management.
Delinquent accounts in contractor's receivables should not be carefully reviewed and discussed with management.
Signup and view all the answers
Study Notes
Contractor's Office at Job Site
- A contractor's office is established at the job site due to the magnitude and duration of construction projects.
- Certain costs are incurred at the job site, including payroll, labor distribution records, purchasing, payment of invoices, cash receipts and disbursements records, petty cash funds, contract costs records, and field equipment records.
Weaknesses in Accounting and Internal Control System
- The temporary nature of job site offices may pose weaknesses or nonexistence in the accounting and internal control system.
- The auditor should conduct a surprise visit to examine the accounting records and review the internal control system in the site.
Problems in Construction Industry
- Payroll padding and loss or pilferage of construction equipment are problems in the construction industry.
- The auditor should consider the payment to workers at the site and making physical inventory tests of field equipment.
Internal Audit Department
- Some large contractors have a separate internal audit department responsible for auditing accounting records and procedures in job sites.
- The auditor should be satisfied with the work of the internal auditor and review the reports during the period.
Review of Contracts
- The auditor should review all major contracts, including contract price, escalation clauses, terms of payment, cancellation features, estimated costs by principal contract components, and original estimated profit.
- Unusual contract features, bonding and insurance requirements, and equipment rental provisions should also be reviewed.
- The auditor should obtain schedules or computations of construction in progress, including the cost incurred in the current year and estimated gross profit this year.
Contracts with Abnormally Low Rate of Gross Profit
- Contracts with abnormally low rate of gross profit should be reviewed with the contractor's engineer and management to determine the losses to be recorded.
Raw Materials and Supplies
- The auditor should audit the materials and supplies used in the construction, which influences the percentage of completion to be used in computing for the gross profit.
- Problems may arise in obsolescence and inactivity, excess materials on contracts, and usage of raw materials.
Accounts Receivable
- A contractor's receivables include amounts currently receivable on completed and uncompleted contracts and certain percentages retained from these receivables.
- Retention receivables are withheld until the completion of the job or even longer in the event certain contract guarantees must be fulfilled prior to final acceptance.
- The contractor's accounting records should have separate accounts for these two types of receivables.
- Receivables should be aged as of the end of the reporting period, and delinquent accounts should be carefully reviewed and discussed with the management to ascertain any doubtful accounts expense to be recognized.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
This quiz covers important aspects to consider when reviewing a construction contract, including contract pricing, escalation clauses, payment terms, cancellation features, estimated costs, unusual contract features, bonding and insurance requirements, and equipment rental provisions.
