Verification Work - Audit Process
At the same time the audit process will need verification work as an example: examination of costing records, allocation and verification of materials, job and overhead costs to supporting documentation, etc; the more sensitive audit subject are disclosure, measurement and recognition of benefits and revenues and valuation issues.
- Contract revenue should be well known in the accounting time whether the work is performed
- Contract costs should be well known against the revenue to that they relate
- Expected excesses of entire contract cost should be known immediately
- Costs that relate to future activity contract work in progress should be carried forward as an asset as given they are recoverable
- Irrecoverable amounts receivable from well known contract revenue should be well known as an expense.
Long-term contracts are those for that the calculated lives are longer rather than one accounting time. Periodic accounts artificially break down the life of company into particular time and the need for the corresponding concepts to be followed makes it essential to ascribe a proportion of the benefits on a contract for all of the accounting episodes such it covers. This is in conflict along with the prudence concept such would need that costs be accumulated till the completion of the contract, or can be reasonably foreseen via estimates to complete. Usually, when there is conflict among the matching concept and prudence concept the prudence concept prevails.