Stand Out in Your Role as a Contractor Finance Leader

Construction Accounting: Reviewing the Contract Schedule

Are you looking to position yourself as a standout leader in your role as a Contractor Finance Leader? The contract schedule, commonly referred to as the Work in Progress (WIP) schedule is a major report to review since it impacts your company’s financial results. It can also be a critical document for project management and future planning. It is important for the Contractor Finance Leader to ensure the WIP schedule is complete and accurate.

Five strategies to consider when reviewing the WIP schedule.

1. Ensure the job listing is complete. The job listing should include completed jobs and jobs in-progress during the current year. Consider a completeness check by comparing the total revenue earned for the period on the WIP schedule to the total revenue amount on the general ledger for that same period.
2. Ensure all job-to-date costs have been included in the WIP schedule. This requires some coordination and collaboration. Depending on the size of your company, it could be coordinated with other regional controllers or accountants, project managers, or superintendents. Be sure to establish a cut-off policy and an internal control process for the parties responsible to review and confirm that all job costs are included for the period under review.
3. Be sure to capture the updated total contract amount and estimated costs. These inputs drive the WIP schedule and ultimately determine the contract’s profitability. Be sure to get the best estimated costs up front and have a frequent review of the estimates to ensure they adequately reflect the total estimated costs of the contract. If the cost estimates change, make sure you have a reasonable explanation and understanding of the change. Typically, these adjustments will have change orders associated, increasing or decreasing the contract amount.
4. Conduct your own reasonableness check of the WIP schedule. Whether you are pulling your WIP schedule directly from the accounting software or manually updating in Excel, be sure to check the calculations. Here are a few checks to consider:
   • A contract’s completion percentage should be calculated as the job-to-date costs divided by the total estimated costs. If the calculation exceeds 100%, double-check your costs.
   • Ensure closed and completed contracts do not have an associated over/under billing.
   • Compare contracts completed during the current year to their prior year status and conduct a year-over-year profit-fade analysis. Gain an understanding of contracts with significant changes in profit margins from one year to the next.
   • If jobs are projecting a loss, ensure the job loss is properly accounted in accordance with ASC 606. As some accounting platforms do not isolate the loss provision, each contract should be reviewed to confirm losses are accounted for appropriately.
5. Review your backlog calculation. Backlog is the remaining performance obligations under contract or the amount of work under contract not yet completed. Make sure these numbers are accurate and closely monitored throughout the year. An accurate understanding over backlog helps contractors effectively manage scheduling, expectations, and the completion of future work.

Additional considerations

The role of a Contractor Finance Leader entails much more than monitoring the WIP schedule. However, it is an important part of contract and financial oversight that warrants a routine review. Monthly or quarterly reviews will make your year-end review much smoother!

Do you need further expansion or have specific questions about these concepts? Contact your Keiter Opportunity Advisor. | Email or call: 804.747.0000

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