Construction Internal Controls and Financial Reporting Flashcards
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Read the first 7 Construction Internal Controls and Financial Reporting flashcards as text
What internal control framework is most commonly referenced in construction audit engagements?
Answer: COSO Framework
The Committee of Sponsoring Organizations (COSO) framework is the most widely referenced internal control framework used in audit engagements, including construction audits.
Which component of the COSO framework addresses organizational structure and the assignment of authority and responsibility?
Answer: Control Environment
The Control Environment component of COSO encompasses the organization's ethical values, management philosophy, organizational structure, and assignment of authority and responsibility.
In construction auditing, a Work-in-Progress (WIP) schedule is primarily used to:
Answer: Assess the financial status of contracts currently in progress
A WIP schedule provides a snapshot of the financial status of active construction contracts, showing billed versus earned revenue and cost incurred versus estimated total cost.
Which of the following is an example of a preventive control in a construction company's disbursement process?
Answer: Requiring dual signatures on checks above a dollar threshold
Requiring dual signatures on checks is a preventive control because it stops unauthorized disbursements before they occur, rather than detecting them after the fact.
Under the percentage-of-completion method in construction accounting, revenue is recognized based on:
Answer: The proportion of contract costs incurred to date relative to total estimated costs
Under the percentage-of-completion method, revenue is recognized proportionally based on costs incurred to date divided by total estimated contract costs, matching revenue to work performed.
Which segregation of duties is most critical in the construction accounts payable process?
Answer: Separating invoice approval authority from check signing authority
Segregating invoice approval from check signing prevents a single individual from both authorizing a payment and actually disbursing the funds, significantly reducing fraud risk.
In construction auditing, 'three-way matching' in the procurement cycle refers to matching which three documents?
Answer: Purchase order, receiving report, and vendor invoice
Three-way matching compares the purchase order, the receiving report confirming delivery, and the vendor invoice to verify that payments are authorized, goods were received, and invoices are accurate.