Construction Audit Services in UAE

Construction profit isn’t as simple as revenue minus expense. There are lots of unseen variables that needs special attention.

A project may be 70% complete physically, for accounting purposes 62%, partially certified by the consultant, subject to variations that are not yet approved, carrying retention receivables that won’t be collected for another year, and may still face cost overruns that management has not yet completely recognized. That is the reason why a construction company audit needs more attention than simply reviewing invoices and bank statements.

Vertix Auditing provides specialist construction audit services in the UAE aimed for contractors, subcontractors, engineering companies, fit-out businesses, MEP contractors and project-based construction groups. Our audit approach focuses on the areas where construction financial statements are at most risk with estimation errors, premature revenue recognition, incomplete project costs and unsupported contract balances. If your construction company needs an independent financial statements audit to identify and address these issues, contact our UAE construction audit team for complimentary initial consultation.

An AED 466+ Billion Market Where Every Construction Project Carries Risk

The UAE construction market is calculated at about USD 127.13 billion in the year 2026, or around AED 466.9 billion. The sector remains to be a strong domain backed by residential development, infrastructure, hospitality, logistics, transport and large-scale public and private investment. In 2025, Construction also represented around 12.9% of the UAE’s non-oil GDP. A sector with this size has huge commercial opportunities, but at the same time, it also has complex accounting.

A contractor may able to report a strong revenue while having a negative cash flow or for other it may seem profitable only till the remaining project costs are reassessed. A project that looks financially stable now can change suddenly if there any delays, penalties, disputed variations or unrecorded subcontractor liabilities. This is why construction companies need a proper system to assess accounting, tax and audit that focus on the economics of individual projects instead of merely recording transactions at business level.

Here is where Vertix steps in: we offer audit and assurance services to businesses in the UAE, such as construction companies that need independent statutory audits, project-related assurance and financial reporting reviews.

Why Construction Companies Need a Specialist Audit Approach

In a construction company, the key figure in the financial statements is usually not the amount that’s spent, but rather management’s projection of future events, such as:

Total contract revenue
Expected variation orders
Project completion
Remaining labour and material costs
Subcontractor costs
Claims and counterclaims
Liquidated damages
Rectification costs
Retention recoverability
Expected losses from projects
VAT compliance for construction businesses

Even a fairly small adjustment to an estimate can materially affect the profit that gets reported. Because of this, our construction audits are planned around the specific projects that create the financial statements.

The Fundamental Areas Audited in Construction and Purpose

Audit Area	What We Test	Why We Test
Contract revenue	Signed contracts, BOQ’S, amendments, certificates and approved variations	Revenue might be recorded early or contain amounts that can’t yet be supported
Project progress	Cost to cost calculations, engineer certificates and project status	To find if the revenue and profit reflect actual performance
Estimated cost to complete	Budgets, procurement commitments, subcontractors and site information	Future understated costs can inflate the current profit
Contract assets	Unbilled revenue and work performed but not yet certified	These balances usually depend largely on management judgement
Retention receivables	Contract terms, certificates, ageing and subsequent collections	Retentions can remain unpaid long after a project has been completed
Variations and claims	Client approvals, correspondence and legal evidence	Unapproved variations should not be turned into revenue automatically
Subcontractor liabilities	Certifications, accrued work, invoices and subsequent payments	Invoicing delays lead to a major understatement of project costs
Materials and site inventory	Delivery records, site records and physical quantities	Materials might be duplicated, used or transported or capitalized in error
Project losses	Revised budgets and expected total costs	Loss making contracts may call for immediate accounting treatments
Receivables and ECL	Ageing, dispute, retention and collection history	Construction receivables are usually left unpaid for long periods

Revenue Recognition: Where Construction Profits Can be Misstated

Construction revenue is perceptive, because usually projects spread across more than one reporting periods. Under IFRS 15, revenue is recognized based on the transfer of promised goods or services to the customer. Where a performance is completed over time, revenue is recognized based on a suitable measure of project progress.

As such, for most construction arrangements, the auditor can’t just rely on verifying the reported revenue with the issued invoices. The professional audit firms must develop deep understanding of each construction contract to be able to accurately conduct the audit. When we perform the construction audit, we review and assess:

Original contract value
Calculated total project costs
Certified work
Amounts billed and collected
Contract assets and liabilities
Disputed or pending variations
Approved variations
Total costs incurred
The actual physical and commercial position of the project

The IFRS 15 requires that variable consideration must be tested and a proper measure of progress is necessary for revenue recognition.

Example: If a contractor has a project of AED 50 million and AED 30 million have been incurred so far. In the beginning, management estimated the project would cost AED 40 million. Accordingly, the management reported a substantial profit. However, the project procurement data shows that another AED 15 million might be needed to complete the project. So, the total cost isn’t AED 40 million anymore, it is AED 45 million. The increase in project costing affects the key areas such as completion percentage, reported margins, and possibly the amount of profit that should be recognized.

This is why it is important to find such changes early before an overstated margin becomes an audited figure. Our guide explains why construction companies need an audit and how audits can help identify financial reporting gaps.

Cost to Complete Testing – A Key Element of Our Audit

Cost related to past projects are usually easier to audit than the future ones. The hardest part is checking if the budget is realistic. So, we test the calculated cost to complete rather than trusting a budget because management said so. Depending on each project, our audit analyse:

Open purchase orders
Subcontractor commitments
Expected delay costs
Pending supplier invoices
Outstanding MEP or finishing works
Site labour requirements
Revised material prices
Mobilization or demobilization costs
Anticipated rectification
Project correspondence
Subsequent expenditure incurred after year end

In places where the remaining costs are inconsistent with the project’s actual progress, we look into the gap with management and the accounting team.

Variations and Claims: Where Evidence Matters

Construction business deals with variations. The accounting issue happens when revenue is recorded from business expectations without real evidence. We see situations like:

The work has been completed
The contractor expects the approval of variations
Client approval for the amount is pending
Still the full amount was counted as the project revenue

In the audit, we check the signed variation orders, engineer certifications, client correspondence, late approvals and other contract related supporting evidences. The purpose is to find if the amount recorded in the accounts can be supported under the proper accounting framework, not to think that every unapproved variation can’t be recovered.

Retention Receivables

Retention is one of the unique aspects of construction accounting. A client usually retains a portion of every certified payment until its practical completion and another sum until the defect liability period expires. As a result, construction companies may still have significant amounts of trade receivable even after all the work has been completed. Our audit procedures include:

Agreement of retention percentage to contracts
Reconciliation of retention ledgers project by project
Checking of certification
Review of the contractual release dates
Testing collections post year end
Investigation of long-standing retentions
Consideration if an expected credit loss allowance is appropriate

This is especially important if the completed projects are still commercially disputed.

Subcontractor Costs: Invoices Coming in Late

One of the most common construction accounting challenges is the problem of inaccurate cost recognition. A subcontractor might have completed a task, yet they may not have issued their final invoice, which means that the company’s year-end project cost is understated if it did not book the relevant accrued expenses. This could simultaneously:

Overstate project profit
Overstate company’s profit
Understate liabilities
Distorting the percentage of completion calculation

Our audit procedures extend beyond verification of unpaid supplier invoices. We also examine the subcontractor agreements, certifications, invoices issued after the year-end, payments, and other project information in order to identify the work completed but not yet recorded.

Common Challenges in a Construction Audit

Key Audit Issue	Financial Statement Risk	How We Address the Risk
Outdated project budgets	Profits may be overstated	Compare budgets to current procurements, commitments and subsequent costs
Unapproved variations recorded as revenue	Revenue and contract assets may be overstated	Review approvals, correspondence and subsequent certification
Missing subcontractor accruals	Cost and liabilities understated	Test subsequent invoices, certificates and project commitments
Old retention balances	Receivables overstated	Ageing analysis, contractual release dates and subsequent recoveries
Incorrect project cost allocation	Individual project margins distorted	Trace labor, materials and overheads to specific projects
Loss making contracts not identified	Liabilities and losses understated	Reforecast project profitability
Project costs recorded in the wrong period	Margins incorrectly stated between years	Perform cut-off testing around year end
Unsupported contract assets	Assets and profits overstated	Reconcile balances to project progress and contractual evidence
Advances incorrectly treated as revenue	Revenue overstated	Review billing and contractual performance obligations
Inter-project transfers not documented	Project reporting not accurate	Reconcile site transfers and cost coding

Contract Assets and Unbilled Revenue

In many cases, the balance sheets of construction companies contain significant balances (e.g. WIP, contract assets, contract liabilities, etc.) that cannot be easily verified by looking at an invoice. Contracted assets can arise when the work has been completed, but the right to bill is subject to meeting additional contractual conditions. The audit must therefore determine what caused the balance. We normally reconcile the contract asset balances to:

Revenue calculations of the project
Certified amounts
Billings
Contract terms
Project progress
Variations
Subsequent certifications

A large contract asset backed solely by an Excel calculation is not considered a persuasive audit evidence.

Identifying Loss Making Contracts Early

Management will always be interested in profitable projects. Auditors should also identify the projects that management would rather not talk about. Where the unavoidable costs of meeting a contract exceed the economic benefits anticipated from it, IAS 37 contains requirements relating to onerous contracts. This makes project forecasting crucial. We review projects with warning signs such as:

Repeated budget revisions
Delays in major projects
Gross margins declining
Disputes with subcontractors
Penalties or liquidated damages
Serious rework
Client disputes
Unusually high remaining costs compared with remaining revenue

A project loss should not wait until the job is done.

Auditing of Equipment and Fixed Assets

Construction businesses often have a wide range of machinery, vehicles, equipment, temporary sites assets and other property, plant and equipment. Our audit procedures may include verifications of:

Ownership
Additions and disposals
Existence
Capitalization criteria
Useful lives
Depreciation
Impairment indicators
Transfers between projects or locations

IAS 16 sets out the principles for recognition, measurement, and depreciation of property, plant and equipment.

UAE VAT and Construction Audit

VAT compliance can particularly be an issue where the billing of the project, advances, retention, variations and tax invoices do not happen at the same time. In the course of a construction audit, VAT balances should be reconciled with the fundamental accounting records rather than reviewing separately. Areas which we need to focus will depend on the business activities of the contractor, like:

Output VAT on project revenue
Advance payments
Input VAT recovery
Credit notes
Variations
Retention arrangements
Imported services
Subcontractors
Reverse-charge transactions
Reconciliation between VAT returns and the general ledger

Along with providing ongoing tax support, Construction companies can benefit from Vertix’s knowledge and experience in UAE VAT registration, filing, ongoing compliance, and even VAT deregistration application.

UAE Corporate Tax and Construction Audit

Construction and development activities are included in the UAE Corporate Tax regime. For contractors who are engaged in such activities, it is crucial to ensure that project accounting is accurate. Accurate accounting serves as the foundation for calculating accounting profit, from which taxable income is derived after necessary adjustments in accordance with UAE Corporate Tax Legislation. Construction businesses should focus on

Accurate revenue cut off
Project provisions
Non-deductible expenditure
Related party transactions
Financing cost
Owner and connected person transactions
Depreciation
Provisions and write off
Transfer pricing
Reconciliation between audited and financial statements and tax return

Along with construction audits, we also handle corporate tax for construction companies, ranging from tax computation, filing, advisory to overall tax compliance.

Project by Project Accounting

An important sign that a construction business is managed well lies in its capacity to make a reliable project profitability report without manually reorganizing at the year end. Good construction accounting should generally allow management to find:

Original contract value
Revised contract value
Approved variations
Project costs incurred
Budgeted costs
Committed costs
Remaining costs to complete
Certified revenue
Billings
Collections
Retention
Contract assets or liabilities
Forecast final margin

In cases, where such records are unavailable, producing dependable financial statements turns out to be considerably harder. Vertix’s bookkeeping and accounting services can assist construction businesses with reliable project accounting, reconciliations, year-end closing, and ensure books are ready for audit.

Internal Controls in a Construction Company

Successful construction firms don’t depend solely on their finance department. Departments such as commercial, procurement, project management and finance functions ought to communicate with one another. Some of the important internal controls are:

Approval of project budgets
Approval of formal variation
Purchase-order controls
Subcontractor certifications
Project-level cost codes
Limits of authority
Monthly budget compared to actuals
Retention registers
Project margin reviews
Site inventory controls
Proper reconciliation of commercial and accounting records

If the management needs a deep analysis of these processes instead of just a statutory financial statement audit, Vertix also conducts internal audit for construction companies to uncover and address the internal control issues.

Our Audit Approach for Construction Companies

We don’t start by requesting just the trial balance. We start by gaining an understanding of how the contractors make money, along with general understanding of their business, internal controls, processes, and key stakeholders.

1 – Understanding the Contracts

We find the major projects and payment terms, performance obligations, retention clauses, variation mechanisms, penalties and risks for specific projects.

2 – Understanding the Project Accounting System

We find how costs are coded, how budgets get updated and how project profitability is determined.

3 – Identifying the High-risk Projects

Large contracts, projects with low margins, loss-making contracts, disputed projects and projects holding significant unbilled balances usually attracts more audit attention.

4 – Analyzing Revenue and Project Costs

We analyze contracts, certifications, invoices, costs, variations and the evidence behind them. Risky areas are identified and shortlisted for substantive testing.

5 – Challenging Management’s Estimates

Estimates for cost to complete, claims, provisions and impairment assumptions are checked against the available evidence, and challenged if required.

6 – Reconciling the Project Records to the Financial Statements

In the end, Project reports ought to align with the revenue, receivables, contract assets, liabilities and profit shown in the financial statements. This reconciliation is performed by our auditors to ensure accuracy and completeness.

7 – Communicating the Results

Material accounting problems are handled throughout the audit, whereas control weaknesses and useful suggestions are shared with the management separately.

Documents Needed for a Construction Audit

Depending on how large and complex the business is, we usually request the following documents:

Legal and KYC documents
Trail balance
Costing reports for all the projects
Signed construction contracts
BOQs
Project budgets
Revised cost to complete schedules
Engineer or consultant certificates
Variation orders
Claims correspondence
Subcontractor agreements
Subcontractor certificates
Retention schedules
Receivable ageing
Project billing schedules
Bank facilities (if any)
Details of any past/current/potential audit from Federal Tax Authority
Performance guarantees
Advance payment guarantees
Inventory and site material records
Fixed asset registers
VAT reconciliations
Corporate Tax records
Litigation or arbitration information
Management project reports

The main goal here is not to ask for documents without valid reason, rather it is to gather the evidence required to determine if the financial result reported for each material project is reasonable and can be relied upon.

Why Choose Vertix Auditing for a Construction Company Audit

Construction audit project calls for auditors capable of understanding how contracts, engineering progress, commercial certifications and accounting entries relates to one another.

Vertix Auditing is a licensed audit company that offers external audit, internal audit, accounting and tax services to businesses registered in mainland as well as free zones like DMCC, DSO, Meydan free zone, DWC, JAFZA, IFZA, etc.

Our audit methodology integrates financial statement audit with the project-based accounting. Instead of treating construction revenue as a single annual figure, we look at the individual projects that make that figure and the assumptions that measure their profitability. We also provide agreed-upon procedure reports for specific areas within the financial statements.

Prepared and Reviewed By: The page has been prepared by Vertix Auditing Team and reviewed by the relevant Audit Partner.

FAQ (Frequently Asked Questions)

1 – Is an audit needed for construction firms in the UAE?

The requirement varies and depends on the company’s legal structure, its jurisdiction and the relevant regulatory rules. Companies on the UAE mainland and numerous free-zone entities are required to undergo an annual audit of their financial statement. Vertix can evaluate these requirements by reviewing the company’s license and legal structure.

2 – Which accounting standard matters more to construction companies?

IFRS 15 Revenue from contracts with customers holds particular significance since it determines when and how revenue is recognized from customer contracts, including situations in which performance obligations are fulfilled over time.

3 – What does cost to complete mean in a construction company?

Cost to complete means the estimated cost that is still required to complete the construction project. It can significantly affect the recognized construction revenue, gross profit, and expected losses. This is why auditors usually examine and assess the assumptions supporting the calculation.

4 – How are construction variations audited?

Before deciding if the accounting treatment can be supported, auditors assess the contractual basis of the variation, its approvals, correspondence, certification, subsequent events and the applicable requirements for variable consideration.

5 – Why are retention balances essential in an audit?

Retention amounts can stay unpaid for longer periods and they usually depend on completion milestones or the end of defect liability periods. Because of this, auditors assess the contractual terms, ageing, subsequent recovery and collectability.

AUDIT – TAX – ADVISORY