Audit points of long-term contracts in progress;
1- The following items
– Type of contract
– Contract amount
– Payment conditions and payments related to work progress
– Contract cancellation conditions and related fines
– Clauses related to the increase in costs
– The need for insurance coverage
– Necessary equipment and materials
– Guarantee of good performance
2- Get or prepare a summary of long-term contracts in progress and the cost price on the balance sheet date, evaluation on the date
Balance sheet, amounts received and receivable for work progress, completion cost
Contract, contract amount (including agreed changes), interest percentage
Show the expectation etc. in the said summary form.
3- The amounts that have been provided for the “full price”, through
Trace the costing records of the contract.
4- Basis and calculation of the amount of overhead in the cost price
is included, check and investigate whether:
A- The said calculation is based on real expenses (or estimates close to reality) and annual activity levels.
B- The portion of the overhead included in the calculations was appropriate and compared to other financial periods, it had “procedural stability”.
5- Checked the basis of including profit/loss in the evaluation of long-term contracts in the progress calculation and the following points were examined for proof.
Put:
A- Profit is recognized only in the case of long-term contracts, and only subject to the fulfillment of the following conditions:
– The outcome of the agreements can be predicted with reasonable accuracy, and
– The said profit can be reasonably attributed to the work done.
B- Whenever the contractual final loss is reasonably foreseeable
Therefore, the loss should be recognized immediately in the financial statements of the same periods.
6- Ensure that the employer complies with the following points:
Amounts received and receivable due to work progress and reserves related to contract losses have been correctly allocated between long-term contracts in progress on the one hand, and creditors/reserves on the other hand (that is, the negative balances of the contracts, as a result Workgroups are not involved in progress).
Long-term contracts in progress:
– The cost price plus the profit related to the deduction of anticipated losses
done
– Received and receivable funds for the progress of the work
– If the expected losses of each of the contracts are from “costs.”
incurred until the balance sheet date after deducting the received and receivable funds
If it is more for the progress of the work, such excess losses should be paid
Shown separately and under the title of reserve.
– Calculation procedure of “cost price”, net sales value”, “relevant profit” and “foreseeable losses”
Mehdi Koh Soltani (financial services, accounting, financial and tax consultant):
Link to the audit accounting clinic
https://t.me/joinchat/BnzBsTuioTshiXBwf9bBPQ