CCA Construction Internal Controls and Financial Reporting 2

Question 1

An 'overbilled' condition on a construction WIP schedule indicates that:

Accepted Answer

The contractor has billed more than the value of work earned based on completion

Answer

The contractor has billed less than the value of work completed to date

Answer

The project is behind the contractual schedule

Answer

Total costs have exceeded the original contract budget

Question 2

In construction auditing, 'retainage' refers to:

Accepted Answer

A portion of each progress payment withheld by the owner until project completion

Answer

A penalty clause assessed for project schedule delays

Answer

The contractor's retained profit margin on a completed project

Answer

Equipment rental costs placed in a reserve escrow account

Question 3

A 'Schedule of Values' in a construction contract primarily serves as:

Accepted Answer

A breakdown of the contract price by work components used as the basis for progress billing

Answer

A list of all subcontractor bid amounts submitted during procurement

Answer

An itemized inventory of equipment values currently on the project site

Answer

A historical record of material prices at the time of original purchase

Question 4

When auditing construction disbursements, 'joint checks' are primarily used to:

Accepted Answer

Ensure material suppliers are paid directly alongside the subcontractor from the same payment

Answer

Verify that subcontractors carry the required bonding and insurance

Answer

Confirm that labor rates comply with prevailing wage requirements

Answer

Document that change orders were approved by multiple authorized parties

Question 5

Which metric best measures a construction company's efficiency in converting project billings into cash receipts?

Accepted Answer

Days Sales Outstanding (DSO)

Answer

Debt-to-equity ratio

Answer

Gross profit margin percentage

Answer

Current ratio

Question 6

The 'underbilled' condition in a WIP schedule, also known as 'costs in excess of billings,' is classified on the balance sheet as:

Accepted Answer

A current asset

Answer

A current liability

Answer

A contra-revenue account reducing net revenue

Answer

An off-balance-sheet contingent liability

Question 7

When auditing a construction company's financial statements, the auditor identifies that estimated costs to complete a project have significantly increased. The primary audit concern is:

Accepted Answer

Whether contract revenue and gross profit have been appropriately revised under the percentage-of-completion method

Answer

Whether the bonding company has been notified of the cost increase

Answer

Whether the project manager has been disciplined for cost overruns

Answer

Whether subcontractors have been issued formal notices to cure