Chapter 35 Auditing Engineering and Construction CompaniesWord格式文档下载.docx
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(a)Percentage-of-CompletionMethod,
(b)Completed-ContractMethod,
(c)ChoosingthePreferableAlternative,
(d)ProvisionforAnticipatedLosses,
(e)CapitalizationofInterestCost,
(f)DeferredTaxAssetsandLiabilities,
(g)FinancialStatementPresentation,
(h)NewAccountingStandards
35.3ENGINEERINGANDCONSTRUCTIONCONTRACTS,INTERNALCONTROL,ANDTESTSOFCONTROLS
(a)TypesofContracts,
(b)RevenueCycle,
(c)Job-CostandRelatedCycles,
(d)ContractEvaluationandControl,andCoststoComplete,
(i)EstimatingandBidding,
(ii)JobForecasts,
(e)OtherControls,
(i)RegionalOfficeorJobSiteAccounting,
(ii)JobSiteVisits,
35.4RISKASSESSMENTANDAUDITSTRATEGY
35.5SUBSTANTIVETESTS
(a)ContractRevenue,
(i)OriginalContractPrice,
(ii)ChangeOrders,
(iii)Claims,
(iv)ContractRenegotiationandTermination,
(v)ContractOptions,
(vi)Additions,
(b)ContractCosts,
(i)CostsIncurredtoDate,
(ii)EstimatedCoststoComplete,
(c)ContractLosses,
(d)ContractBillings,
(e)ContractLiabilities,
35.1OVERVIEWOFTHEINDUSTRY
Constructioncompanies,oftenreferredtoascontractors,operateinvarioustypesofbusinesses,withvaryingdegreesofrisk.Forthatreason,acontractorshouldbeconsideredwithinthecontextofthemarketitserves.Theconstructionindustryincludesthefollowingtypesofcontractors:
∙Residentialbuilding--includingsingle-familyandmulti-familybuildings
∙Nonresidentialbuilding--includingindustrialplants,hospitals,warehouses,officebuildings,andretailandlodgingfacilities
∙Heavyconstruction--includinghighways,bridges,dams,railroads,airports,refineries,powerplants,transmissionlines,andwaterandsewerpipelines
∙Specialtradecontractors--includingplumbing;
heating,ventilation,andairconditioning;
painting;
electrical;
masonry;
andcarpentry
∙Other--includingoperationsandmaintenancecontractorsandenvironmentalremediationservices
Inaddition,manyoftheeconomicandfinancialissues-aswellasaccountingandauditingguidance-affectingtheconstructionindustryapplytoengineeringandarchitecturalservices.Accordingly,theyarecoveredinthischapter.
Theformsinwhichbusinessisconductedintheengineeringandconstruction(E&
C)industrysegmentsvarywidely,fromlarge-scaleinternationalcorporationsthatperformawholespectrumofservices,includingengineering,procurement,construction,management,andfinancing,tosmallfamily-operatedbusinessesandspecial-purposejointventures.Althoughmanycompaniesengageinmorethanonetypeofactivity,manydevelopanexpertiseinoneparticulararea.
TheE&
Cindustryishighlycompetitive,inpartasaresultofadecliningnumberoflargeinfrastructureprojectsovertheyears.Therealsocontinuestobesignificantpressureforindustryconsolidation.Thegreateruseoffixed-priceandturnkeycontracts,whichentailincreasedrisks,hascreatedanenvironmentinwhichE&
Ccontractorsoftenarecompelledtoreducemargins.(Inaturnkeycontract,thecontractorperformsall,ornearlyall,oftheaspectsoftheproject,includingengineering,procurement,andconstruction,oftenforasingleprice.Theownerhaslittleinvolvementwithday-to-daymanagementoftheproject.)
Withfewerprojectsavailableindomesticmarkets,manycontractorshavebeguntocompeteininternationalmarkets.Theexpansionintoforeigncountriesbycompaniesnotaccustomedtooperatinginternationallypresentssignificantfinancialandoperatingrisks.Inparticular,companiesthathaveexpandedintoAsiahaveexperiencedsignificantdecreasesinbacklogasaresultoftheAsianeconomiccrisisinthelate1990s.(BacklogintheE&
Cindustryistheamountofrevenuethatacontractorexpectstoberealizedfromworktobeperformedonuncompletedcontractsandnewcontractualagreementsonwhichworkhasnotbegun.)
Cindustryisverysensitivetochangesineconomicconditions.Duringrecessionaryperiods,constructionbudgetsaregenerallythefirsttobecutbackasresourcesareredirectedtocurrentoperations.Duringthosetimes,E&
Ccompaniesaremorelikelytoacceptless-profitable,riskiercontractsasameansofutilizingoverheadandretainingexperiencedpersonnel.Theimpactofaneconomicdownturn,however,isnotimmediatelyreflectedinanE&
Ccompany'
sfinancialstatements.Theeffectispostponedbecausecontractsinprocessandextendingoveraperiodofyearsnormallyarecompletedduringthedownturn,providingrevenuesforthenearfuture.However,ascontractsinprocessnearcompletion,newprojectsmaynotbeaddedtothecontractor'
sbacklogataratethatwillsustainfundinglevelsadequatetocoverfuturecosts.Whenthissituationarises,E&
Ccompaniesaregenerallyinabetterpositionthanentitiesinotherindustriesbecausetheyareabletoreactbyreducingvariablecostcomponents.Staffreductionscanbedetrimentaloveranextendedperiod,however,asthelossoftalentedpersonnelmaymeanthatthecontractorwillnotbewellpositionedwheneconomicconditionsimprove.
IfanE&
Ccompanyreachesapointwhereitsbacklogisinsufficienttocoverfixedcosts,thecompanymaysellassets,issuedebt,orrestructureequity.Theseactionsalsomayaffectitsabilitytobidonadditionalwork.Also,projectcostscouldbeunderestimatedorpotentialcostsavingsoverestimatedinordertoobtaincontracts.Thisstrategycouldbedeliberateinthehopeofobtainingworkandmakingupprofitsfromchangeordersasthecontractisperformed.Unfortunately,suchastrategymaybecomemorecostlybecauseadditionalmanagementtimeisnecessarytonegotiatesuchchangesandthepotentialfordisputesincreases.ManyE&
Ccompaniesdonotpossessthesystemsandadministrativeexpertisetonegotiatesignificantchangeordersonatimelybasis.Consequently,suchchangesmaybedisputed,andarbitrationorlitigationmaybecometheonlymeansofsettlingthedisputes.Costsassociatedwithchangeorderactivities,includingtheallocationofinternalresources,mayresultingreatereconomiclossesthangainsfromsettlements.Acompanyalsomayexperienceinjurytoitsprofessionalreputationfromexcessivechangeorderactivity,whichmayresultinthelossofpotentiallucrativefutureprojects.
Similartotheeffectofadownturn,theeffectofaneconomicrecoveryontheE&
Cindustrygenerallylagsthatinotherindustries.Thenumberandprofitabilityofcontracts,orlackthereof,includedinanE&
sbacklogaffectitsperformanceforatimegenerallyequivalenttotheaveragecontractlifecycle.
GovernmentregulationsandpolicieshaveasignificanteffectontheoperationsofE&
Ccompanies.Theindustryisrequiredtocomplywithlocalbuildingcodesandzoningordinancesandwithregulationsofseveralfederalregulatoryagencies,suchastheOccupationalSafetyandHealthAdministration,theEqualEmploymentOpportunityCommission,andtheEnvironmentalProtectionAgency.Constantchangesingovernmentregulationsarethereasonforthepractice,commonintheindustry,ofdisclaimingresponsibility,incontracts,forobtainingallgovernmentapprovals,licenses,andpermitsrequiredforaconstructionordesignproject.Thisresponsibilitymustbebornebytheowneroftheproject.
Lowerinterestratesbeginningin1993initiatedanupswingfortheindustryasthebuildingmarketstrengthened.Growthinthemarket,theliquidationofovervaluedrealestateassetsbyfinancialinstitutions,atrendtowardrealestatesecuritization,andthereturnoftraditionallenderstothemarketledtoanincreaseincommercialconstructioninthemid-1990s.Additionalgovernmentalregulation,someofwhichistheresultofregionalnaturaldisasters,furtherincreasedthenumberofinfrastructureprojects.Amovetowardprivatizationofprojectstraditionallysupportedbygovernmentalfunds(includingtollroadsandbridges),deregulationofelectricalpowergeneration,andcontinuingenvironmentalremediationeffortsalsohavecontributedtoarecoverywithintheE&
Cindustry.
AlmostallE&
Ccompaniesarelookingforwaystoreducecostsandimproveperformancethroughprogramssuchastotalqualitymanagement,e-businesssolutions,andsharedservices,orbyoutsourcingvariousaspectsoftheadministrativefunctions.Inaddition,theindustryhasseenanincreaseintheuseofjointventuresandstructuredpartneringagreementstofacilitatefinancingofprojectsandreduceoverheadcosts.
35.2ACCOUNTINGFORENGINEERINGANDCONSTRUCTIONCONTRACTS
AccountingprinciplesfortheE&
CindustryareprescribedmainlyinAccountingResearchBulletin(ARB)No.45,Long-TermConstruction-TypeContracts(AccountingStandardsSectionCo4);
theAICPAauditandaccountingguides,ConstructionContractors,andAuditsofFederalGovernmentContractors;
andStatementofPosition(SOP)81-1,AccountingforPerformanceofConstruction-TypeandCertainProduction-TypeContracts.TheFinancialAccountingStandardsBoard(FASB),inStatementofFinancialAccountingStandards(SFAS)No.56,paragraph8(AccountingStandardsSectionA06.112),hasindicatedthatthespecializedaccountingprinciplesinSOP81-1andtheconstructioncontractorsguidehavebeendesignatedaspreferableforpurposesofjustifyingachangeinaccountingprincipleforlong-termconstruction-typecontracts.
Inaddition,inDecember1999,theSECstaffindicatedinStaffAccountingBulletin(SAB)No.101,Reven
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