Contract accounting is the only area of financial reporting where an optimistic assumption made in month three produces a loss in month twenty. The estimate of cost to complete is where most construction audits concentrate, and it is where most disputes with auditors arise.
The cost to complete estimate
Stage of completion is normally measured by costs incurred against total expected costs, which means the whole revenue figure depends on an estimate of costs still to come. Where that estimate has not been revised since the contract started, or where it has been revised only downward, profit is being recognised that may not exist. Loss-making contracts must be provided for in full as soon as the loss is foreseeable, not spread.
Variations agreed on site
The most common source of dispute we see. Work instructed verbally, performed, and never formalised. It is real cost and it may or may not be recoverable revenue, and the accounting treatment depends on whether recovery is probable rather than on whether it is deserved. A variations register maintained contemporaneously is worth more than any argument after the fact.
Retentions
Held for the defects period, released later, and forgotten by everybody except the customer. They should be aged from the contractual release date and reviewed for recoverability separately from ordinary trade debt. We regularly find retention balances past their release date that nobody has requested.
Subcontractor withholding
Works attract a different withholding rate from services, and construction businesses routinely apply one rate across a mixed subcontractor base. The error is systematic, it repeats every month, and it accumulates into an assessment.
Property and the 2026 VAT change
The flat rate previously applied to immovable property was abolished by Act 1151, and affected businesses must move to standard rated VAT with full input tax recovery. For developers this changes both pricing and recoverable input tax on construction costs, and it needs modelling rather than assuming.
The estimate the whole revenue figure depends on
Withholding on works, distinct from the services rate
Immovable property flat rate abolished from 2026
Findings
What we find in construction and property
Contract estimates and retentions account for most of it. Both are recoverable positions if they are addressed early enough.
- Cost to complete never revised, so stage of completion overstates progress
- Loss-making contracts spread rather than provided for in full when foreseeable
- Variations performed on verbal instruction with no contemporaneous register
- Retentions aged from invoice date rather than contractual release date
- Retention balances past release date that nobody has requested
- Subcontractor withholding applied at one rate across a mixed base
- Plant and equipment leases not assessed under IFRS 16
- Property businesses still applying the abolished immovable property flat rate
Services
What construction and property clients use us for
Audit dominates, because contract accounting is where the judgement sits. Tax follows on withholding and the VAT transition.
Statutory audit
Contract accounting, cost to complete, retentions and variation treatment.
Explore →VAT and indirect taxes
The Act 1151 transition, particularly for property businesses leaving the flat rate.
Explore →Corporate tax compliance
Withholding on subcontractors, and the timing difference between contract and tax treatment.
Explore →Internal controls review
The variations process, subcontractor approval and retention tracking.
Explore →Questions
Questions from contractors and developers
When should contract revenue be recognised?
How should variations be treated?
What withholding rate applies to subcontractors?
We are a property company on the old flat rate. What changed?
Next step
Send us your three largest live contracts.
The cost to complete estimates on those three will tell us more about the reported profit than the trial balance will.