A construction audit report is a crucial legal and financial document that confirms the accuracy and reasonableness of investment costs, completed work, and project funding. Especially for projects using state capital, it serves as an independent and objective basis for the competent authority to approve the final accounts. Law on Independent Auditing No. 67/2011/QH12Many projects are required to undergo audits, affirming the indispensable role of this report in investment management.
The accuracy of construction audit reports directly impacts tax obligations, the recognition of fixed assets, and the calculation of corporate income tax after investment. Without audit confirmation, settlement figures are easily disallowed during tax audits. Auditing according to Vietnamese Auditing Standards VSA 1000 ensures absolute reliability of investment costs, providing a solid legal basis for investors and contractors in the post-project phase.
What is a construction audit report? Its paramount role in public and private investment.
Construction audit reports are crucial documents in the final settlement of completed projects, especially for large-scale public and private investment projects. Not only do they confirm the accuracy of costs and quantities, but they also serve as a mandatory legal basis for approving final settlements, handing over the project, and accounting for assets. Understanding the true nature and role of construction audit reports helps investors control risks and optimize capital utilization.
Standard definition of a Construction Audit Report
Report construction audit This is the final product of the audit process of the completed investment project's final settlement report, conducted by qualified independent auditing firms. The nature of this report is a highly professional confirmation, ensuring that the final settlement report has been prepared on the basis of current accounting standards and regulations, and complies with legal regulations on the management of capital construction investment.
The main objective is to provide an opinion on the accuracy and reasonableness of the final cost figures, the validity of the completed work volume, and the completeness of the legal documents related to the project. A quality construction audit report will not only focus on numbers but also evaluate the project management process.
The role of construction audit reports in the project cycle.
In investment project management, especially for large-scale projects or those using state capital, construction audit reports play a crucial role, acting as the final "filter" before the project is officially handed over and put into operation.
The most important role is to create a legal basis for approving the final accounts. According to Government Decree 99/2021/ND-CP on the management, payment, and final accounts of projects using public investment capital, the audit report is one of the mandatory documents for the competent authority to make the final decision.
Furthermore, construction audit reports help investors optimize their capital. Through auditing, unreasonable costs, deviations from established standards, or excess or shortage of quantities will be detected and adjusted promptly, minimizing waste and losses.
| Role | Detailed description | Impact on the project |
| Increase reliability | Independent verification of the accuracy of costs, quantities, and funding sources. | This helps build trust in the financial statements of the approving authority, investors, and banks. |
| Legal basis | Provide the required documents to complete the investment capital settlement approval procedure. | Ensure the project meets the requirements for completion, handover, and asset accounting. |
| Cost optimization | Identify unreasonable costs, incorrect standards, or incorrect unit prices; recommend adjustments. | Save budget and improve the efficiency of investment capital utilization. |
| Comply with the law. | Confirm compliance with regulations regarding construction, bidding, accounting, and taxation. | Minimize future legal risks and administrative penalties. |
Distinguishing between Construction Auditing and Financial Statement Auditing
Although both are independent audits, construction audit reports differ fundamentally from financial statement audits in terms of scope, objectives, and applicable standards.
Auditing financial statements focuses on the accuracy and fairness of a company's assets, liabilities, equity, and operating results during an accounting period. The applicable standard is the General VSA (200-800).
In contrast, construction audit reports focus solely on a single subject: the final investment settlement report for completed projects. The specific standard used is VSA 1000. The scope of the audit is very broad, encompassing technical elements (quantities, standards), financial aspects (costs, funding sources), and legal aspects (bidding procedures, contracts).
Legal basis and standards applicable to construction audit reports.
To ensure the authority and reliability of construction audit reports, auditors must strictly adhere to Vietnam's legal system and accounting and auditing standards.
Related Vietnamese Auditing Standards (VSA)
The core standard governing the preparation of construction audit reports is Vietnamese Auditing Standard No. 1000 (VSA 1000) – Auditing of Final Project Accounts.
VSA 1000 clearly defines the objectives, scope of the audit, the audit procedures to be performed, and the requirements for audit opinions on project final accounts. Compliance with VSA 1000 is mandatory, ensuring that all construction audit reports are of consistent quality and reliability.
Governing Laws, Decrees, and Circulars
The legal system governing construction audit reports is very extensive, requiring auditors to have comprehensive knowledge in many fields:
- Law on Independent Auditing No. 67/2011/QH12: Regulations specifying the conditions for practicing auditing, the responsibilities of auditors and audited entities, especially in cases where auditing is mandatory (Article 42).
- Construction Law No. 50/2014/QH13 (amended): Regulations on construction investment cost management and construction quality management serve as a basis for verifying the reasonableness of quantities and unit prices.
- Decree 99/2021/ND-CP: This document provides detailed guidance on the management, payment, and settlement of projects using public investment funds. It is the most important legal document for the process of preparing settlement documents and for construction audit reporting requirements.
- Circulars from the Ministry of Finance and the Ministry of Construction: Specifically, it clarifies guidelines on accounting regimes, investment cost management, and unit price norms, for example, Circular 10/2020/TT-BTC on the preparation of construction project estimates.
Accurately referencing these legal documents in the working file enhances the authority of the construction audit report.
Regulations on Construction Audit Reports in State Capital Management
For projects using public investment capital, the mandatory requirement for construction audit reports has been enhanced to ensure transparency and prevent losses. Clause 2, Article 42 of the Law on Independent Auditing clearly stipulates that nationally important projects and Group A projects using state capital must be audited before being submitted to the competent authority for final approval.
This regulation is not just a procedure but also a macroeconomic management tool, helping the National Assembly and the Government to effectively monitor public investment. Therefore, a standardized construction audit report is a prerequisite for a project to be closed on its financial books.
The core content of the Construction Audit Report: Controlling investment costs.
The content of a construction audit report focuses on verifying the constituent elements of the project's final settlement value. Auditors will conduct cross-referencing between legal documents, economic contracts, work acceptance records, and accounting documents.
Auditing legal documents and sources of funds.
Legal auditing is the first and most important step in preparing a construction audit report.
Completeness and legality of investment documents
Auditors will examine the validity of key documents such as Investment Decisions, Construction Permits, Technical Design Approval Decisions, and Bidding Documents.
If these documents are incomplete or violate the law (e.g., carried out before an investment decision is made), the entire project may be deemed illegal, seriously impacting the construction audit report.
Check the structure and validity of the funding source.
Auditors determine the total capital mobilized and used for the project, including budget funds, loans, and equity capital. This verification aims to ensure that funds are recorded and used for the intended purpose in accordance with the Law on Public Investment, without any discrepancies or illegal misappropriation of funds. This is a decisive factor in determining the validity of the construction audit report.
Audit of investment costs
This is the central and most time-consuming part of the audit process for preparing a construction audit report.
Construction and equipment costs (Value, quantity, unit price)
Auditors must perform detailed reconciliation procedures:
- Check the weight: Compare the actual quantities accepted with the quantities specified in the contract and design documents. This usually requires the auditor to conduct a site survey or review the as-built drawings.
- Check the Unit Price: Compare the unit prices applied in the contract with the system of norms and construction unit prices issued by the State agency (for example, the Circular on construction norms of the Ministry of Construction). Discrepancies in unit prices are a common cause of exclusions in construction audit reports.
- Check the Value: Multiply the accepted quantity by the reasonable unit price to determine the total contract value to be settled.
| Expense | Key Audit Elements | Common risks |
| Construction | Actual quantities, unit prices of materials, labor, and construction machinery. | Overestimating quantities, applying incorrect standards, and announcing prices at the wrong time. |
| Device | Compatibility of equipment, import price (if any), installation cost. | The equipment was unused, the purchase price was higher than the market price, and import documents were missing. |
Accurately verifying construction cost values is a key factor in ensuring the reasonableness of a construction audit report.
Project management fees, consulting fees, and other expenses.
The auditor determines whether these costs are calculated as a percentage (standard rate) or as a lump-sum contract.
- Project Management Costs: Calculations must be based on the standard rates stipulated by the Ministry of Construction or as specified in the signed contract.
- Consulting Fees: This includes surveying, design, and supervision. Auditors review contracts, service acceptance reports, and compare them with regulations regarding construction consulting fees.
- Other Costs: This includes loan interest, land compensation costs, and relocation costs. The auditor checks the completeness of invoices and original documents, and compares them with regulations regarding expenses permitted to be included in investment capital.
The accuracy of these cost estimates further strengthens the credibility of the construction audit report.
Audit of liabilities and assets under handover.
This section ensures that all transactions have been properly recorded and the resulting assets have been accurately valued.
Reconcile accounts receivable and accounts payable.
Auditors conduct a reconciliation of accounts payable with contractors, suppliers, and other related parties. The purpose is to confirm the completeness and accuracy of outstanding debts and to ensure that no potential debts are overlooked in the construction audit report.
This confirmation helps the investor settle all economic relationships before the project ends, avoiding future disputes.
Determining the value of assets formed after investment.
The audited settlement value serves as the basis for accounting for increases in the entity's fixed assets. The audit report confirms this fixed asset value, directly impacting the calculation of depreciation and reasonable expenses when calculating corporate income tax for many subsequent years.
Errors in determining the settlement value can lead to over- or under-depreciation, causing significant discrepancies in profits and corporate income tax obligations.
The process for preparing and issuing a professional construction audit report.
The preparation of construction audit reports follows a rigorous process, based on VSA 1000 and relevant legal regulations.
Audit preparation phase (Contract signing, planning)
- Customer reviews: The auditing firm assesses the audit risk of the project (level of complexity, the investor's internal control system, the legal aspects of the project).
- Sign the contract: Agreement on the objectives, scope, timeframe, and costs of the audit. This scope must encompass all elements of a construction audit report in accordance with VSA 1000.
- Audit Planning: Develop an audit strategy, determine materiality levels, and allocate resources. This plan is adjusted based on the preliminary risk assessment.
Audit execution phase (Evidence gathering, verification)
This phase includes steps to gather sufficient and appropriate audit evidence to form the basis of the construction audit report:
- System check: Evaluate the client's internal control system and project management processes.
- Analysis procedure: Compare actual costs with estimates, standards, and past data from similar projects.
- Detailed procedure: Perform verification of original documents, compare acceptance reports, conduct physical inventory (if necessary), and send debt confirmation letters. Auditors must pay particular attention to the consistency and legality of settlement documents.
Final stage (Drafting and issuing the official construction audit report)
- Summary of results: The set of findings, errors, and corrections has been identified. The level of error is quantified and compared to the defined materiality level.
- Drafting: Prepare a draft construction audit report and submit it to the Investor's Board of Directors for discussion and feedback.
- Official Report Release: After resolving any outstanding issues, the auditor officially issues an audit opinion and publishes a construction audit report bearing a valid signature and seal.
This rigorous process ensures the independence, objectivity, and professionalism of construction audit reports.
Forms of audit opinions and the impact of construction audit reports.
The auditor's opinion in the construction audit report is the most important part, determining the approval of the project's final settlement report. There are four main types of opinions as stipulated in VSA 1000.
Unanimous opinion: Absolute belief
An unqualified opinion is given when the auditor concludes that the final project report fairly and reasonably reflects the material aspects. This means that costs, volumes, and funding sources all comply with accounting standards and legal regulations.
This is the most desirable outcome, creating absolute confidence for the settlement approval authority and relevant parties, and facilitating a swift project closure process.
Exceptional opinions and risks
A qualified opinion is issued when the auditor discovers material but non-proliferating misstatements, or when the scope of the audit is limited.
For example: The auditor discovers that the construction costs are reasonable, but the supervision and consulting fees are incorrectly calculated according to Circular 10/2020/TT-BTC. This exception will be clearly stated in the construction audit report, requiring the investor to adjust that portion of the cost before approval.
Opinions that are not accepted and refusal to give an opinion.
- An adverse opinion is given when errors are found to be material and pervasive enough to affect the overall integrity of the final settlement report. For example, the client failed to comply with bidding regulations, resulting in the entire contract value being illegal. A construction audit report with this opinion typically leads to the final settlement report being rejected.
- Disclaimer of Opinion: This occurs when the auditor is unable to obtain sufficient and appropriate audit evidence to form an opinion. This could be due to significant loss of records, inability to reconcile accounts payable, or limitations in the scope of the audit.
These negative reviews are all major warning signs, indicating high legal and financial risks for the project.
Optimize costs and manage risks through construction audit reports.
The practical value of a construction audit report lies not only in completing the procedure, but also as an effective tool for managing project finances and risks.
Minimize losses and waste of investment capital.
Auditors, with their extensive experience and expertise in standards, unit prices, and bidding procedures, can identify the following cases:
- Calculate excess weight: The volume recorded in the acceptance report is higher than the actual volume of work completed.
- Incorrect unit price applied: Using unit prices that are inappropriate for the time or location of construction leads to unreasonable cost overruns.
- Unreasonable costs: Consulting fees and other expenses were recorded but lacked complete supporting documentation or were not directly related to the project.
Identifying and eliminating these unreasonable costs (as clearly shown in the construction audit report) helps to ensure that the company's budget or capital is used in the most efficient and economical way.
The basis for resolving outstanding financial and technical issues.
Construction audit reports provide detailed recommendations on how to address outstanding issues. For example, if the audit discovers that interest expenses are not calculated correctly according to regulations (Circular on capital management), the auditor will recommend adjustments to ensure compliance.
For projects using ODA or foreign investment funds, a construction audit report in accordance with Vietnamese or international standards (such as ISA 800) is a mandatory requirement to demonstrate the proper use of funds as committed and to maintain a reliable partnership.
Practical experience: Common mistakes in final settlement reports.
During the auditing process, auditing firms frequently discover recurring errors in final settlement reports, leading to significant adjustments in the construction audit report.
Errors in construction cost estimates.
- Double expense calculation: Include contingency costs in the final settlement value, or double-count the construction insurance costs.
- Incorrect application of standards: Using outdated norms or applying norms that are not suitable for actual construction conditions (for example, applying norms for lowland projects to projects in mountainous areas).
- The contract is unclear: The contract signed with the contractor did not clearly specify how prices would be adjusted, leading to the contractor charging excessively high prices.
Errors in legal and accounting records.
- Lack of approval decision: Costs incurred before the date of the investment decision or the project adjustment decision.
- Invalid documents: Invoices and expense documents that lack complete information or do not comply with current regulations on electronic invoices.
- Interest expenses that are not capitalized: Interest expenses for capital construction investments are not fully capitalized according to Vietnamese Accounting Standard (VAS) 16, or are counted twice.
Understanding these shortcomings allows the investor to proactively address them before requesting a construction audit report, saving time and costs.
Conclude
Construction audit reports are not only a mandatory procedure but also a benchmark for transparency and efficiency in the use of investment capital. These reports confirm the legality of the documentation, the accuracy of the quantities and construction costs according to VSA 1000, and protect the interests of the investor, contractor, and the State. They are an irreplaceable basis for affirming the integrity of the project's final settlement report.
In accounting, auditing, and taxation, construction audit reports help reduce the risk of expense disallowance during inspections, while accurately determining the value of fixed assets and capitalized costs for long-term depreciation and corporate income tax calculations. For projects undergoing final settlement, a highly reliable audit report is crucial for legal compliance and tax optimization. MAN provides professional construction audit services, partnering with businesses to complete final settlements safely and efficiently.
Service contact information at MAN – Master Accountant Network
- Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
- Mobile/Zalo: 0903 963 163 – 0903 428 622
- Email: man@man.net.vn
Content production by: Mr. Le Hoang Tuyen – Founder & CEO MAN – Master Accountant Network, Vietnamese CPA Auditor with over 30 years of experience in Accounting, Auditing and Financial Consulting.
