AUDITOR’S REPORT (cont.)
How the scope of our audit responded to the Key Audit Matter
Key Audit Matter
Our procedures included, but were not limited to:
Recognition of construction revenue
• Evaluating management’s processes and controls in respect of the recognition of construction revenue; • Selecting a sample of contracts for testing based on a number of quantitative and qualitative factors which may indicate that a greater level of judgement is required in recognising revenue and: § agreed the contract terms to the initial contract price; § tested contractual entitlements for changes, variations and claims recognised within contract revenue to supporting documentation, and by reference to the underlying contract, § assessed management’s basis for estimates of unapproved variations and claims brought to account within contract revenue, § tested a sample of costs incurred to date to supporting documentation; § assessed the forecast costs to complete through discussion and challenge of project managers and finance personnel; § recalculated the percentage of completion based on costs incurred to date relative to total forecast costs; § assessed appropriateness of contingency allowances within forecast costs; § evaluated exposure to liquidated damages for late delivery of works; and § challenged management’s ability to forecast margins on contracts by analysing the accuracy of previous margin forecasts to actual outcomes. • Assessing the adequacy of the relevant disclosures in the financial statements. Evaluating management’s processes and controls in respect of the recognition of construction revenue We also assessed the appropriateness of the disclosures in Notes 1(c), 1(i), 2 and 3 to the financial statements.
Refer to Note 1(c) ‘Construction Contracts’, Note 1(i) ‘Revenue’, Note 2 ‘Critical accounting judgements and key sources of estimation uncertainty’ and Note 3 ‘Revenue’.
As at 30 June 2023 the Group’s revenue from construction contracts is $200.9 million.
Construction revenue is recognised over time as performance obligations are fulfilled. Construction revenue is recognized by management after assessing all factors relevant to each contract, including specifically assessing the following as applicable: • Estimation of total contract revenue, including determination of contractual entitlement and assessment of the probability of customer approval of variations and acceptance of claims; • Estimation of total contract revenue, including variable consideration, and costs including the estimation of cost contingencies; • Determination of stage of completion and measurement of progress towards satisfaction of performance obligations; • Estimation of project completion date. We focused on recognition of construction revenue and as a key audit matter due to the number and type estimation events over the course of a contract life, the unique nature of individual contract terms leading to complex and judgmental revenue recognition from contracts.
Annual Report 2023 48
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