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

Overbilling, also called 'billings in excess of costs and estimated earnings,' occurs when a contractor has invoiced the owner for more than the revenue earned based on actual work progress.

Question 2

In construction auditing, 'retainage' refers to:

Accepted Answer

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

Answer

Retainage is a percentage (typically 5–10%) of each progress payment withheld by the owner until the project reaches substantial completion, providing performance assurance.

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 Schedule of Values allocates the total contract sum across individual work components and serves as the agreed basis for calculating each progress payment application submitted by the contractor.

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

Joint checks are made payable to both the subcontractor and their material supplier, ensuring the supplier receives payment and reducing the risk of mechanic's lien claims against the project.

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

Days Sales Outstanding (DSO) measures the average number of days it takes to collect payment after billing, directly indicating how efficiently the company manages its accounts receivable.

(CCA) Certified Construction Auditor Practice Test

(CCA) Certified Construction Auditor Practice Test

CCA Construction Internal Controls and Financial Reporting 2