Introduction to Accounting in Construction Firms
Accounting errors construction companies make in UAE can damage profits, delay projects, and create disputes. Construction is a growing sector, where performance is measured by efficiency and completion timelines. In many cases, accounting is ignored until mistakes surface. With expert help from Mubarak Al Ketbi (MAK) Auditing, firms can prevent errors and keep financial statements accurate.
Incorrect Allocation of Overheads to Jobs
Many contractors allocate indirect costs using outdated or incorrect methods. Overheads may include:
- Rent
- Utilities
- Office salaries
- Depreciation
When allocation isn’t accurate, project costs become misleading. To fix this, contractors must revisit overhead rates yearly. Based on the type of project—labour-intensive or material-heavy—they should apply the most suitable method.
Misrepresenting Estimated Job Costs
Errors also occur when estimated costs don’t match actual spending. Many construction firms use the percentage-of-completion method. Wrong estimates, ignoring revisions, or misreporting actual costs all cause errors.
How to avoid this:
- Compare estimated costs with actual costs every month.
- Update project budgets regularly.
- Record all revisions accurately.
This prevents unexpected losses and keeps financial reports transparent.
Improper Job Cost & Billing Cut-off
Cut-off errors arise when invoices are missed during financial closing. For example, if invoices arrive after the reporting period, they’re excluded, causing wrong results.
Steps to prevent this error:
- Record all invoices promptly.
- Maintain proper cut-off procedures.
- Reconcile accounts payable before finalizing reports.
Such procedures help ensure accuracy in billing and reporting.
Failure to Record Losses
Another common mistake is failing to recognize project losses. Under GAAP rules, contractors must record losses as soon as they’re known. Many firms continue projects without acknowledging potential loss, which leads to misleading results.
Solution:
- Track job progress closely.
- Update budgets and costs regularly.
- Recognize losses immediately when discovered.
This prevents overstating profits and ensures compliance.
Challenges of IFRS 15 in Construction
Construction companies in UAE face difficulty with IFRS 15 compliance. It requires estimating variable consideration in contracts, including unapproved claims or variations. Revenue can only be recognized when it’s highly probable that reversal won’t occur.
Key points to consider:
- IFRS 15 requires detailed disclosures.
- Management must make clear judgments.
- These judgments impact project performance reports.
By handling IFRS 15 carefully, firms improve investor trust and reduce audit risks.
Not Seeking Professional Help
Perhaps the biggest error is trying to manage construction accounting without expert guidance. Contractors often make decisions without consulting accountants. This leads to wrong cost allocation, compliance issues, and tax risks.
By consulting experts like Mubarak Al Ketbi (MAK) Auditing, construction companies can:
- Improve accounting practices.
- Ensure compliance with UAE laws.
- Avoid costly penalties.
- Gain insights for better project performance.
🥇 What Can Help – Mubarak Al Ketbi (MAK) Auditing
Construction accounting errors can cause big financial setbacks. Mubarak Al Ketbi (MAK) Auditing offers specialized auditing and accounting services to prevent mistakes, improve compliance, and maximize efficiency. After all, a penny saved is a penny earned.
For more information visit our office:
- 📍 Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
- 📞 Contact/WhatsApp: +971 50 276 2132
