Construction companies work with long project timelines, changing costs, progress claims, subcontractors and significant commitments. These factors can make year-end financial reporting more involved than it is for businesses with simpler transactions. A well-planned audit helps provide an independent review of the company’s financial statements and gives directors, shareholders, lenders and other stakeholders greater confidence in the figures.
Koh & Lim Audit PAC provides audit services for construction companies in Singapore. We work with businesses involved in building construction, civil engineering, renovation, infrastructure, interior fitting-out and related activities. Our audit approach considers how construction projects affect revenue, costs, work in progress, receivables, contract balances, equipment and financial commitments.
Independent audit services for construction businesses
An audit is an independent examination of a company’s financial statements and supporting records. The auditor gathers evidence to assess whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework and relevant requirements.
For a construction company, the audit may involve more than checking invoices and matching bank transactions. The audit team needs to understand how the company identifies projects, tracks progress, records project revenue and costs, assesses work in progress, and accounts for claims or variations.
The specific procedures depend on the company’s size, business activities, project portfolio, systems and risk profile. Our work is planned around the company’s records and the nature of its operations, with the aim of completing the audit efficiently while obtaining appropriate audit evidence.
Why construction companies may need an audit
A Singapore company may need an audit to meet statutory obligations, satisfy group reporting requirements, comply with financing or contractual terms, or provide assurance to stakeholders. Some companies may qualify for an audit exemption, subject to the applicable criteria and circumstances. ACRA’s current guidance explains the small company audit exemption framework, and companies should confirm their own eligibility rather than assume that size or private ownership alone is sufficient. Accounting and Corporate Regulatory Authority
An audit may also be requested by a bank, investor, parent company, government-related counterparty or other stakeholder, even where the company is not required to have a statutory audit. Construction businesses should check their financing documents, shareholder arrangements, group instructions and project contracts for any audit or reporting requirements.
Where an audit is required, ACRA states that a company generally must appoint an auditor within three months of incorporation unless it is exempt from audit requirements. Accounting and Corporate Regulatory Authority
Understanding construction project accounting
Construction projects can span more than one financial period. The company may incur labour, materials, equipment and subcontractor costs before receiving payment, while project claims may be submitted at different stages of the work. This timing can create important accounting judgements.
During an audit, we may examine how the company:
- Identifies and records revenue for each project
- Tracks costs against approved budgets and project estimates
- Records work completed but not yet billed
- Accounts for progress claims and amounts certified
- Recognises contract assets, contract liabilities or deposits
- Assesses variations, claims, retentions and disputed amounts
- Identifies expected losses or cost overruns
- Allocates shared resources and overheads to projects
- Records project completion and handover
The accounting treatment depends on the facts of each contract and the applicable financial reporting framework. Our audit work considers the supporting documents, management’s calculations and the consistency of the accounting applied across projects.
Revenue, progress claims and contract balances
Construction revenue may be recognised over time or at a point in time, depending on the contract terms and the relevant accounting requirements. The audit may therefore focus on whether the company’s revenue recognition method reflects the work performed and is supported by reliable project information.
Relevant evidence can include signed contracts, approved variation orders, architect or consultant certificates, project reports, site records, progress claim submissions, customer confirmations and subsequent receipts. We may compare recorded revenue with project budgets, cost reports and progress documentation to identify unusual movements or inconsistencies.
Progress claims do not always match the revenue recognised in the accounts. A company may have completed work that has not yet been billed, or it may have received an advance payment before performing the related work. These timing differences can give rise to contract assets or contract liabilities. The audit considers whether these balances are properly recorded, supported and presented.
Retention sums also require attention. A portion of a progress claim may be withheld until a project milestone, defects liability period or other contractual condition is met. We may review the terms governing each retention, assess whether the amount is recoverable and consider whether any provision or impairment adjustment is appropriate.
Project costs, subcontractors and suppliers
Project costs are a major part of a construction company’s financial statements. These may include building materials, subcontractor charges, labour, site expenses, equipment hire, transport, insurance and project management costs.
The audit may examine whether costs are recorded in the correct period and assigned to the appropriate project. We may test supplier invoices, subcontractor claims, delivery orders, purchase orders, payment records and project cost reports. Where costs relate to work not yet completed, we may consider whether they should be included in work in progress or treated as expenses for the period.
Subcontractor balances can be complex when claims are submitted after the reporting date or remain subject to certification. We may review contractual terms, certificates, correspondence, subsequent payments and management’s estimates of outstanding costs. This helps assess whether the company has recorded liabilities for work performed before year-end, including costs that have not yet been invoiced.
Where a project has experienced delays, rework, material price increases or productivity issues, the latest cost forecast may differ significantly from the original budget. Management should review the expected total cost of each material project and consider whether an estimated loss or other adjustment is required under the applicable accounting framework.
Work in progress and project estimates
Work in progress may include costs relating to projects that are still underway at the reporting date. The audit considers how the company identifies these costs, measures them and determines whether they remain recoverable.
A reliable project costing process helps management compare actual results with budgets and identify changes early. For audit purposes, useful records may include project-level ledgers, cost-to-complete reports, approved budgets, revised forecasts, site progress updates and explanations for significant variances.
Estimates should be based on the best information available at the reporting date. If a project’s expected cost has increased, the company should update its forecast and assess the financial statement impact. We may compare estimates with later invoices, project outcomes or other available evidence to evaluate whether the assumptions used were reasonable based on the circumstances.
Variations, claims and disputed amounts
Construction projects often change after work begins. A client may request additional work, alter specifications or extend a project timeline. The contractor may also submit claims for delays, additional work or other contractual entitlements.
Audit procedures may include reviewing variation orders, correspondence, meeting minutes, claim submissions, legal advice and subsequent settlement or payment information. The key considerations are whether the company has a contractual basis for the amount recorded, whether the amount can be measured reliably, and whether the accounting treatment is consistent with the applicable framework.
A claim that has been submitted is not necessarily the same as an amount that is accepted or recoverable. Companies should maintain clear documentation that distinguishes approved variations from pending, disputed or rejected claims. This supports more accurate reporting and helps the audit team understand management’s position.
Retentions, receivables and expected credit losses
Construction companies may have significant trade receivables and retention balances. These can be concentrated among a small number of clients or relate to projects where certification and payment are taking longer than expected.
We may review the ageing of receivables, payment history, customer correspondence, certificates, disputes and receipts after the reporting date. The audit considers whether there is evidence that a balance may not be recoverable and whether any required impairment allowance has been recognised.
For retention sums, we may assess the contractual conditions for release, the status of outstanding defects and whether the client has raised any claims or deductions. Clear schedules by project and expected release date can make these balances easier to monitor and support.
Equipment, vehicles and leased assets
Construction businesses may own or lease machinery, tools, vehicles, site equipment and other assets. The audit may examine asset purchases, disposals, depreciation, impairment indicators and the completeness of the fixed asset register.
Where equipment is moved between projects, the company should maintain records that support its ownership, location, condition and use. If assets are leased, the company may need to consider the relevant lease accounting requirements and maintain lease schedules showing payment terms and balances.
Large purchases may require particular attention to determine whether they should be capitalised as assets or expensed as project costs. The treatment depends on the nature of the item, the company’s accounting policy and the applicable reporting requirements.
Cash flow, loans and project financing
Construction businesses may need to fund wages, materials and subcontractor payments before receiving progress payments. As a result, cash flow management and financing arrangements can have a significant effect on the company’s operations.
During the audit, we may review bank balances, loan agreements, interest charges, security arrangements, covenant calculations and the classification of borrowings. We may also consider whether the company has disclosed material commitments, guarantees or security interests appropriately.
Directors are responsible for considering whether the company can continue operating for the foreseeable future and for preparing financial statements on an appropriate basis. Where a company faces cash flow pressure, delayed payments, losses or difficulty obtaining financing, those matters may require additional attention in the financial reporting process.
Audit preparation for construction companies
Preparing key schedules and project documentation early can help an audit proceed smoothly. Before the audit begins, companies should consider organising:
- The trial balance and draft financial statements
- Bank statements and reconciliations
- Project contracts and approved variations
- Project revenue and cost reports
- Progress claims, certificates and invoices
- Work in progress and cost-to-complete schedules
- Lists of retentions and outstanding receivables
- Subcontractor and supplier balances
- Fixed asset and lease schedules
- Loan agreements and covenant calculations
- Board minutes and significant correspondence
- Details of disputes, claims, guarantees and commitments
The audit team may request additional information based on the company’s circumstances. A clear contact person and prompt responses to queries can help avoid unnecessary delays.
How our audit process works
Our audit process begins with understanding the company’s business, projects, accounting systems and reporting timetable. We discuss key developments during the financial year and identify areas that may require focused audit attention.
We then agree on the information needed and plan the audit work. Depending on the engagement, procedures may include testing transactions, reviewing estimates, confirming balances with third parties, examining contracts and assessing financial statement disclosures.
At the end of the audit, we discuss significant findings and any proposed adjustments with management. We then issue the appropriate auditor’s report based on the audit evidence obtained and the applicable professional requirements.
The timing of the audit depends on the readiness of the records, the complexity of the projects, the availability of staff and the resolution of outstanding matters. Early planning is especially helpful when a company has multiple active projects or a year-end reporting deadline set by a lender or parent company.
Choosing an auditor for a construction company
Construction companies should choose an auditor who will take the time to understand their business and communicate clearly throughout the engagement. Useful considerations include the auditor’s experience with project-based businesses, the quality of audit planning, the clarity of information requests and the ability to discuss accounting issues in practical terms.
Directors should also consider whether the audit timetable fits the company’s reporting needs and whether the engagement team can coordinate effectively with the finance team, company secretary and other advisers.
An audit is not a substitute for management’s own financial controls or project monitoring. It is an independent examination of the financial statements. Strong internal records and regular project reviews remain essential for managing costs, cash flow and contractual obligations.
Audit services for Singapore construction companies
Koh & Lim Audit PAC provides audit services for construction companies in Singapore, including contractors, builders, renovation companies, civil engineering businesses and other project-based organisations. We aim to understand the company’s operations, explain the audit process and carry out our work with professionalism and care.
Whether your company needs an audit for statutory compliance, group reporting, financing or stakeholder requirements, we can discuss the engagement scope and the information needed to get started. Contact Koh & Lim Audit PAC to arrange a discussion about audit services for your construction company in Singapore.