Construction Industry Conference - Virtual-3 - Wiedemann - AA-Update-and-Risk-Assessment-in-Construction-Company-Audits

3 - Wiedemann - AA-Update-and-Risk-Assessment-in-Construction-Company-Audits

Pdf Summary

The presentation reviews 2026 accounting developments for construction companies and explains how auditors can focus on the jobs most likely to contain material misstatements.<br /><br />The construction outlook is active but cautious: projected U.S. starts are $1.26 trillion, with data centers a standout sector. Tariffs, interest rates, labor shortages, and changing project mix make cost estimates and margins less predictable.<br /><br />Key tax developments under the One Big Beautiful Bill Act include permanent 100% bonus depreciation, a higher Section 179 deduction limit, restored immediate expensing for domestic research costs, and more favorable Section 163(j) interest deductions. Contractors should also plan for the sunset of Sections 179D and 45L incentives, including the June 30, 2026 construction-start deadline for 179D eligibility. Accounting developments include expanded income-tax and segment disclosures, expected-credit-loss requirements for receivables and retainage, and continued judgment under ASC 606. Surety capacity remains available, but underwriters value strong financial reporting and scrutinize contractor risk.<br /><br />The audit approach centers on the work-in-progress (WIP) schedule. Auditors assess contracts by financial magnitude and estimation uncertainty, applying deeper substantive testing to large, uncertain jobs and analytics to smaller, more predictable ones. Six warning signs warrant heightened attention: jobs 20–80% complete, large contract assets, significant margin fade, estimated losses, wide bid spreads, and work outside the contractor’s expertise.<br /><br />For flagged contracts, auditors may recalculate completion, test cost-to-complete estimates, investigate subsequent billings and costs, analyze margin trends and related jobs, verify loss provisions, review bid documentation, and corroborate estimates for unfamiliar work. The central message is that reported revenue and margin depend on estimates—not simply invoices—so audit effort should follow contract risk.

Keywords

construction accounting

2026 accounting developments

work-in-progress schedule

audit risk

material misstatements

bonus depreciation

Section 179 deduction

expected credit losses

revenue recognition

contract estimation uncertainty