CLIENT:

K/AP/3

AUDIT PROGRAM
____________________________________________________

PERIOD:

____________________________________________________

SUBJECT:

CAPITAL WORK-IN-PROGRESS

Est.
Hrs
.

Phase/
Level

W/P
Ref.

Procedures
AUDIT OBJECTIVES
To determine whether:
A.

B.
C.

D.

Capital work-in-progress represents all tangible assets

owned or held under finance lease that are intended to
be used in the entity's operations are under
construction or installation phase or have not yet been
put into operation and they are properly recorded at
cost on a consistent basis.
Additions to capital work-in-progress during the audit
period are proper capital charges and represent all
actual physical property to be installed or constructed.
The costs applicable to all transfers to operating fixed
assets/assets subject to finance lease/investment
property have been properly removed from capital
work-in-progress and have been transferred to
respective assets.
Capital work-in-progress has not been imposed by any
material factor.

SUBSTANTIVE PROCEDURES
1. Overall Analytical Review
1.1

Obtain an analysis of activity in the construction-inprogress accounts, by project or appropriation, for the
current period. Include the balances at the beginning
and end of the period, additions, transfers and other
dispositions.
1.2
Cross-reference the total activity to the summary
analysis for the period.
1.3
For significant projects or appropriations suspended,
cancelled or delayed during the period, review the
related circumstances and evaluate the effect on
realizability or recoverability of costs incurred.
1.4
Review cash flow projections or budgets and, through
discussions with appropriate client personnel,
determine whether the client has identified adequate
resources to complete the project or appropriation.
2. Additions
2.1

Review the description of additions overall, noting

whether they represent capitalizable costs.

Page: 1/5

By

Comments/Explanation
s

CLIENT:
K/AP/3

AUDIT PROGRAM
____________________________________________________

PERIOD:

____________________________________________________

SUBJECT:

CAPITAL WORK-IN-PROGRESS

Est.
Hrs
.

Phase/
Level

W/P
Ref.

Procedures
2.2

2.3

2.4

2.5
2.6

2.7

2.8

2.9

2.10

Review appropriate approval documentation to ensure

that additions are not made to unauthorized projects or
to projects for which the approval limit has been
exceeded.
Select a sample of projects or appropriations for
testing and have the client prepare a schedule
detailing the charges for those selected.
Scope/Sample: (
)
Trace the charges to the construction-in-progress
subsidiary ledger or similar record that accumulates
charges and credits to individual projects or
appropriations.
Inspect critical forms and documents supporting a
sample of charges to the project. Scope/Sample: (
)
Review the total charges for the project to date for
reasonableness by reference to contracts with
contractors, published statistics on costs of
construction, the client's prior experience with similar
additions, insurance or appraisal reports, architect's
certificates or other appropriate sources.
Review the propriety of the methods used to capitalize
interest costs during the construction period and
determine whether they are consistent with the
methods used in the prior period. Evaluate the
propriety of the time period for which interest was
capitalized and the interest rate used; recompute the
amount capitalized. Ensure that capitalization does not
result in asset carrying values in excess of the
recoverable value of the property. Particularly ensure
compliance of IAS-23.
Review the propriety of the methods used to capitalize
overhead during the construction period and
determine whether they are consistent with the
methods used in the prior period. Evaluate the
propriety of amounts capitalized.
Review the propriety of the method used for
allocation of exchange loss and check whether it has
been applied consistently. Ensure compliance of IAS23 and relevant provisions of the Companies
Ordinance, 1984.
For simultaneous construction of two assets e.g., plant
and colony, allocate the soft costs including
unallocated expenditures to assets capitalized in
proportion to total amount of directly attributable
cost / hard costs
Page: 2/5

By

Comments/Explanation
s

CLIENT:
K/AP/3

AUDIT PROGRAM
____________________________________________________

PERIOD:

____________________________________________________

SUBJECT:

CAPITAL WORK-IN-PROGRESS

Est.
Hrs
.

Phase/
Level

W/P
Ref.

Procedures
2.11
2.12

2.13

Ensure that depreciation on construction equipments

used for capital work-in-progress is allocated /
capitalized in this head instead of charging it off.
Physically
observe
significant
projects
or
appropriations in process at the end of the period,
noting that the physical characteristics appear to be
consistent with the description in the authorizing
documentation and that the estimated stage of
completion appears reasonable.
For self constructed assets ensure that the expenditure
incurred during construction phase has been classified
and segregated among formation, direct project cost,
indirect cost, as per the requirement of TR-20 of ICAP
and further ensure the accounting treatment as
follows:

Formation costs like preliminary expenses are

charged off not exceeding five years
commencing from the financial year in which it
was first incurred.

Direct project costs like import duties, clearing

and LC expenses, sight preparation cost,
installation cost are capitalized.

Indirect costs like general and administration

expenses, operation and maintenance cost, loss
on trial runs, etc. are allocated to building and
plant and machinery in proportion to their
respect cost.

3. Transfers
3.1

3.2

3.3
3.4

For projects or appropriations completed during the

year, determine whether there was a proper cutoff of
the capitalization of interest and overhead and
whether all related costs were transferred to the
property accounts (note propriety of classification)
and considered for depreciation on a timely basis.
Obtain completion certificates for all transfers during
the audit period either from the outside
contractors/consultants or internal engineering
department.
Review subsequent to year-end transfers and consider
whether these were complete as at the balance sheet
date or not.
Ensure that the depreciation charge has commenced
on all assets capitalized during the period according to
the Companys policy.
Page: 3/5

By

Comments/Explanation
s

CLIENT:
K/AP/3

AUDIT PROGRAM
____________________________________________________

PERIOD:

____________________________________________________

SUBJECT:

CAPITAL WORK-IN-PROGRESS

Est.
Hrs
.

Phase/
Level

W/P
Ref.

Procedures
4. Valuation
4.1
4.2

Consider whether the costs are realizable or

recoverable.
For significant projects, confirm with outside
contractors amounts due or progress payments made
and other pertinent terms relative to the construction
contract.

Other tests as deemed necessary

Management Letter
Prepare management letter points including:

Internal control weaknesses;

Business improvement opportunities;
Legal non-compliance;
Accounting system deficiencies; and
Errors and irregularities not material at the
financial statements level.

Disclosure
Ensure appropriate disclosure in accordance with the
reporting framework and fill relevant portion of
Financial Statement Disclosure Checklist (FSDCL).
Supervision, review and conclusion
1.
2.
3.
4.

Perform Senior review and supervision.

Resolve Senior review points.
Resolve Partner and Manager review points.
Conclude response to the audit objectives.

Page: 4/5

By

Comments/Explanation
s

CLIENT:
K/AP/3

AUDIT PROGRAM
____________________________________________________

PERIOD:

____________________________________________________

SUBJECT:

CAPITAL WORK-IN-PROGRESS

Est.
Hrs
.

Phase/
Level

W/P
Ref.

Procedures

By

Comments/Explanation
s

Audit conclusion
Based on the substantive test procedures, I/we performed as outlined above, it is my/our opinion that the audit objectives set forth at
the beginning of this audit program have been achieved, except as follows:
___________________________________________________________________________________________________________
___________________________________________________________________________________________________________
___________________________________________________________________________________________________________
Date:____________

______________
Signature

___________
Job Incharge

Page: 5/5

________
Manager

_______
Partner