Audit services for construction companies
Construction businesses deal with long-term contracts, complex subcontractor arrangements, retention accounting, and CIS compliance obligations that make their accounts harder to audit than most industries. The key challenges in a construction company are concentrated in revenue recognition on part-completed contracts, subcontractor cost accruals, and the recoverability of contract debtors.
We’ve audited construction companies for over 20 years, from specialist contractors to main contractors running multi-million pound construction projects. We understand the sector’s commercial pressures and the specific accounting challenges they create.
What is a construction audit?
A construction audit examines whether the company’s financial statements give a true and fair view of its financial position. But construction accounting is different from standard commercial accounting in several important ways:
- Long-term contract revenue – Revenue on construction projects running beyond a single accounting period must be recognised over time using the percentage-of-completion method. We test the cost-to-complete estimates, the stage of completion calculations, and the expected margin on each significant contract.
- Contract variations and claims – Unagreed variations and claims against clients or subcontractors need careful assessment. We consider whether recognition is appropriate and whether the amounts are recoverable.
- Subcontractor costs – Construction projects involve layers of subcontractors. The audit checks that costs are properly accrued, CIS deductions are correctly applied, and liabilities to subcontractors are complete.
- Retentions – Retention balances (both receivable from clients and payable to subcontractors) need to be tested for recoverability and proper disclosure.
CIS compliance and audit
The Construction Industry Scheme creates specific compliance risks. CIS deductions must be calculated correctly, monthly returns filed on time, and subcontractor verification carried out before first payment. HMRC penalties for CIS errors are automatic and cumulative.
Our work includes reviewing CIS compliance as part of the standard engagement. We check that deductions match the verified status of each contractor, that returns are accurate, and that the company isn’t inadvertently creating HMRC exposure through processing errors.
Construction project accounting
The financial reporting on any large construction project depends on judgement calls about percentage completion, expected costs to finish, and the likelihood of recovering variations. These estimates directly affect reported profit, and they can swing significantly from one year to the next. A construction project that looked profitable at interim can turn into a loss-maker once final account negotiations begin.
We review management’s construction project estimates with professional scepticism. That means testing the underlying assumptions, comparing forecast margins to achieved margins on completed contracts, and checking whether the company has a track record of accurate estimating. Where a contractor is running multiple jobs simultaneously, we look at the portfolio as a whole to spot patterns of over-optimism.
Site inspection and physical verification
For material contracts, we attend site inspection visits to verify the stage of completion. Seeing the works at first hand gives us context that spreadsheets alone can’t provide. If management says a project is 80% complete but the site tells a different story, that matters for the accounts.
Being on site also helps us understand the practical issues that could affect financial reporting. Delays, disputes, defects, and weather-related setbacks all have cost implications that should be reflected in the contract accounting.
Working with contractors
We audit both main contractors and specialist trade contractors. The audit approach differs because the risk profile differs. Main contractors carry project management exposure, client credit exposure, and coordination challenges across multiple subcontractor relationships. Trade contractors face concentration risk (fewer, larger clients), cashflow timing risk from retention terms, and CIS deduction impacts on working capital.
We tailor the audit to the company’s specific position in the construction supply chain.
Advisory and going concern
Construction company failures often stem from contract losses that weren’t recognised early enough. We challenge management’s contract-by-contract assumptions rather than accepting them at face value. Where we see going concern questions – particularly for a contractor dependent on a small number of large projects – we raise it early so the directors can take action.
We also provide advisory input on accounting policy choices, disclosure requirements for construction contracts under FRS 102, and the financial reporting implications of joint ventures and consortium arrangements common in the construction industry. Having an auditor who understands these arrangements makes a real difference.
Our approach
We’re ICAEW-regulated and on the Register of Statutory Auditors. We plan the audit around your project cycle, not just your year end. We understand the stakeholder expectations, from bonding companies to commercial lenders, that construction businesses need to satisfy.
Fees are fixed and agreed upfront. Call us on 0161 832 4451 or request a callback.
