| There is no shortage of general accounting | | | | Profit reporting is another unique feature of the |
| packages available however if you are in the | | | | industry. Traditional accounting assumes that the |
| building and construction industry you should seek | | | | client is only invoiced for work provided. However |
| out a specialised solution designed just for your | | | | construction projects are typically executed over |
| industry. Why?.........Because construction is so | | | | a number of financial periods and depending upon |
| different and it's so easy to fail. | | | | the contract this could mean that the client is |
| The issues start with the construction projects | | | | invoiced in advance. Using general accounting |
| themselves. These can often involve large value | | | | software, companies would then overestimate |
| contracts and what concerns the business is that | | | | their profits and pay tax on them. Later they |
| changes in the scope of works (called variations) | | | | would have to do reversals when all the activities |
| are often greater than the project's planned | | | | required to complete the project required |
| "gross profit". | | | | payment. A proven approach is to report on |
| Unless variations are managed properly the | | | | current "earned value" by projecting both Income |
| viability of the business is at risk. Purpose built | | | | and total project costs to completion. |
| Construction Accounting Software will include | | | | Construction Accounting Software needs to take |
| facilities to highlight these and to produce the | | | | a wider view of the world than standard |
| required paperwork through the various stages a | | | | accounting systems. For example, the projects |
| variation goes through before it is approved by | | | | themselves involve considerable risks that can |
| the client. This ensures that should either the Head | | | | cause cost increases or time delays or both. |
| Contract or Subcontract be disputed then the | | | | Firms need to manage these risks and ideally the |
| required paperwork is in place to help the business | | | | construction project management software would |
| justify its claims in a court of law. | | | | feature an integrated operational risk |
| With construction project varying in their scope of | | | | management software system. This would ensure |
| works; the corresponding changes to the value of | | | | the key items of work, decision or verification are |
| contracts and subcontracts; and payments being | | | | properly managed and account for the value of |
| made out of sync with deliverables, it is easy to | | | | the identified risks. |
| see why the stakeholders strive to clearly | | | | The Taxation Laws (of Australia and probably |
| recognise their position in all projects and to | | | | elsewhere) are another reason why construction |
| implement corrective actions to avert liquidity | | | | accounting is different. Tax treats certain |
| issues downstream. | | | | construction specific transactions in a special way. |
| Construction companies generally fail for liquidity | | | | For example: |
| reasons - therefore, Construction Accounting | | | | - Goods & Services Tax (GST) on Progress |
| Software will focus on providing tight liquidity | | | | Claims |
| management with the current status for all | | | | - Retentions |
| projects always available. To complicate matters, | | | | In summary, Standard Accounting Systems, fail |
| good project managers will aim to maximise, | | | | to provide what the industry requires; namely a |
| under the terms of the contract, the income | | | | package that mitigates disputes, manages risks, |
| from their projects. This will result in an influx of | | | | conforms to industry Taxation requirements and |
| funds however funds received prior to | | | | accurately reports liquidity and profits. These |
| expenditure should not be confused as "profit". | | | | functions can only be effectively met through |
| They are "project prepayments" and should be | | | | specialised Construction Accounting Software. |
| clearly reported as such. | | | | |