Long term contracts - audit process, Auditing

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Long Term Contracts - Audit Process

The authoritative document with reference to long term contracts is IAS 11: Construction Contracts and IAS 18: Revenue Recognition, and ISA 600 Reliance on the Work of another Auditor.

IAS 11 Construction Contracts

A construction contract is a contract particularly negotiated about the construction of an asset or mixture of assets that are closely interdependent or interrelated in terms of their technology, design and function or their eventual purpose or needs.

That contract often span quite than one accounting time. This provides rise to a number of accounting and hence auditing issues. The auditor must examine a schedule of each the construction contracts such the enterprise is currently engaged in, and reach a decision as to where attribute to capable losses and profits have been satisfactorily estimated.

Also the presentation of contracts in the financial statements must accord along with the IAS. Even though the auditor should have a working knowledge to be capable to deal along with many aspects of long term contracts, it may be essential to contact external experts to seek assurance in specialist areas wherever the auditor has not enough expertise himself. Assume an example, determination of the stage of completion of a building in course of construction.


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