The Types of Construction Audit

The-Types-of-Construction-Audit

Audit today is not only a requirement of the law, but a severe necessity. Indeed, in the event of tax violations or claims for debts, bankruptcy, persons controlling the debtor, owners, company managers and chief accountants, may fall under subsidiary and even criminal liability.

Let's see how auditing helps today and what criteria you should focus on not to make a mistake when choosing an audit company.

There are several types of construction audit:

  • Financial. The design and estimated documentation and the cost of construction work are being checked. The target allocation of funds, deviations from costs are monitored, and contract agreements are audited;
  • Technical. Includes quality control, timing, materials, verification of construction work;
  • Internal audit of the company is carried out to find problem areas, to detect misuse of funds;
  • External audit assesses the financial and economic activities of the company, confirms the reliability of accounting documentation.
The Goals of Construction Audit

Construction is a complex and stepwise process, where each stage requires careful control and calculations. During the audit, the project documentation is revised and analyzed. In general, the task list looks something like this:

  • Analysis of all data and documents on the object (design, estimate, financial, permits, surveys);
  • Analysis of title documents. A financial audit of a construction site allows you to identify whether a land plot was legally acquired when registering the right to own land, or whether there is an encumbrance. If you build an object on a disputed site, this will have serious consequences;
  • Checking documentation for compliance with the law. The contractor may be negligent in the preparation of documentation, not bring it into line with the law, or even not prepare it at all. This will lead to legal consequences and disruption of the launch date of the facility;
  • Analysis of the average market cost of materials and components. Construction audit specialists study the contractor's proposals for the cost of work and materials, and carry out analytical work to make sure the prices are correct. They compare the proposed cost with the average market price for a particular region, monitoring the resources on which contractors place their prices. Such a comparative analysis allows you to prevent overpricing, derive the average cost of work and materials, and see the market;
  • Checking the conformity of the documentation with realities;
  • Identification of errors in calculations and their compliance with standards;
  • Checking the volume of used building materials;
  • Determination of completed construction works, their cost and quality;
  • Assessment of the technical condition of building structures;
  • Identification of defects, determination of the cost of their correction;
  • Clarification of financing for the completion of construction work;
  • Determining the degree of readiness of the object;
  • Control of the declared deadlines for the delivery of the project;
  • Assessment of potential risks and recommendations for their minimization.
Stages of Financial Audit Implementation at a Construction Site

Construction audit of financial costs can be divided into several main stages:

  • Collection of general information. Study of design estimates and concluded contracts study of documentation, monitoring of documentation on construction works and materials, verification of contracts with suppliers;
  • Field work (control measurements at the construction site, checking the quality of work performed and materials, surveying the territory, determining defects by external signs, quality control of materials, laboratory tests, determining the condition of load-bearing structures);
  • Analysis of the obtained data, reconciliation of design estimates with the situation at the construction site, budget examination;
  • Drawing up defective statements, protocols;
  • Conducting technical and financial expertise, analysis of deviations and violations, risk forecast.
  • Identification of violations;
  • Drawing up a technical conclusion and recommendations, preparing a report.

The customer receives a final conclusion, which gives an assessment of the effectiveness of investments in the project, an analysis of the compliance of costs with the original budget, and the actual work performed. Based on the results of the audit, it becomes clear whether the allocated budget is sufficient to carry out all the work.

During the audit, the facts of theft, attribution of violations, negligence, misuse of funds may be revealed. The report reflects typical problems identified in the framework of a construction audit:

  • Poorly executed construction and installation works;
  • Lack of a complete documentation package;
  • No permits or no estimates;
  • The use of low quality materials;
  • Violation of construction technology;
  • Defects and damages, errors in the executive documentation;
  • Inconsistency of accounting data with the actual dimensions of the construction object;
  • Unreasonable additional work;
  • Waste of materials.
Where to Find a Good Auditor Company?Internet

Now a lot of the information about potential counterparties is available on the Internet. Therefore, you can make the first impression by opening the website of an audit firm and evaluating the relevance of publications for yourself:

  • News, events, articles on taxes, and most importantly, cases on audit and protection during tax control;
  • Customer reviews and portfolio by industry;
  • Audit team, memberships, external quality control;
  • Conditions of professional liability insurance (standard or extended);
  • Personal recommendations.

Nevertheless, when choosing an audit company, it is much safer to focus on personal recommendations and the experience of colleagues. Proven audit companies are always well known, like a reliable doctor or other specialist. It is good when auditors are advised by people from your industry.

Ratings

In addition, independent ratings of audit companies are a good resource. They show the amount of audit revenue, and therefore the amount of practice and experience of the audit team and experts.

Price

Selecting auditors based on price alone is risky although it is an important factor. It is useful to look at the offers on the local audit market in order to get an idea of the prices as a kind of starting point. But to base your decision and choose only according to the price criterion is wrong.

A formal audit can be inexpensive, but its results will be quite mediocre and even sad. For some organizations, this option may be satisfactory. But it clearly does not meet today's needs for the protection and development of not only one business, but also the industry as a whole.

At the same time, a quality audit cannot be cheap. On the contrary, you should consider the activities of auditors as an investment that will help preserve and protect the company's resources, and if legitimate reserves are identified, direct the released funds to business development.

To correctly determine the cost of audit services, it is necessary that potential auditors receive more data about the specifics of your business, hold a meeting and draw up an individual technical task. Adequacy of the price is based on a large number of criteria. Therefore, if auditors ask for information only on the company's revenue, but do not ask about the nature, number of operations, other features and objectives of the business, the cost of the audit will most likely be irrelevant.

Of further importance will be the data on who and how will carry out the check, as well as the individual approach that takes into account the specifics of the sphere and business risks, as reflected in the terms of reference for the audit contract.

In addition, ask the question about the reports that will be carried out based on the results of the audit, because this also affects the quality and cost of the service.

Most of the errors can be corrected during the audit process and this is determined by the quality of the audit firm's approach. Therefore, it is important to focus not only on the price, but also on other criteria. 

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Sunday, 14 April 2024