GROUP 4

AUDITING CONSTRUCTION
AND REAL ESTATE INDUSTRY
Members:
Baricog, Cynthia Ann
De la Rama, Neil Christian
Rapas, Queen Robelyn
Yango, Jen Martin
MODULE
OBJECTIVES
01 know the nature and backgroundof the particular specialized industry;

02 learn the overview, statistics, and updates of the specialized industry in the

Philippine setting;
03 Identify the different audit considerations and trends for the industry
OVERVIEW
One successful business in the construction world is the real estate
industry. This industry covers many aspects of the property such as
development, leasing, appraisal, marketing, and management of
commercial, residential, agricultural, and industrial properties. The
industry fluctuates depending on the economies but at the same time
remains consistent since people always need homes and businesses need
commercial space.
NATURE AND BACKGROUND
OF SPECIALIZED INDUSTRY
CONSTRUCTION
The construction industry comprises of building, alteration, and/or repair. Examples include residential
construction, commercial construction, bridge erection, roadway paving, excavations, demolitions, and large
scale painting jobs.

• Residential construction refers to the building or renovation dwellings. The vast majority of residential
construction jobs are small renovations, such as addition of aroom or renovation of a bathroom or kitchen.
• Commercial construction includes apartments, office and retail buildings, hotels, schools, public
buildings, industrial and manufacturing buildings, highways andbridges, sewers, pipelines, power lines,
power plants, and other civil engineering projects.
REAL ESTATE
Real estate is any real property consisting of land and improvements such as fixtures (i.e., access door,
lighting, awnings, etc.), buildings, roads, structures, and even utility systems.
HERE ARE THE FOUR
TYPES OF REAL ESTATE:
HOW THE REAL
INDUSTRY WORKS
1.Development
• Real estate development is the process of purchasing raw land, rezoning, renovation and construction of
buildings, as well as sale or lease of finished products to end-users. Real estate developers end profit by
adding value to the land such as creating buildings or improvements or rezoning and taking a risk in
financing a project.
.2. Sales and Marketing
• Firms that focus primarily on sales and marketing work with developers to sell buildings and units that they
create. Commissions are earned by these firms for creating all marketing material and using sales agents to
sell completed units. Sales and marketing firms focus more on new units.
HOW THE REAL
INDUSTRY WORKS
3. Brokerage
• A brokerage is a firm with a team of real estate agents or realtors as employees. The real estate agents help in
facilitating a transaction between buyers and sellers of property. One of their jobs is to represent either party and
help them achieve the purchase or sale with the best possible team.
4. Real Estate Lending
• Lenders include banks, private lenders, credit unions, and government institutions. They play a huge role in
the real estate industry since all properties and developments use debts to finance their business.
HOW THE REAL
INDUSTRY WORKS
5. Property Management
• Property management firms play a role in helping real estate owners rent out the units in their buildings.
Some of their jobs include collecting rent, fixing deficiencies, performing repairs, showing units, and
managing the tenants. They charge a fee which is a percentage of the rent to property owners.
6. Professional Services
• There are a variety of real estate professionals who work in the industry and help make it function. The
most common examples (other than the ones listed above) are accountants, lawyers, interior designers,
stagers, general contractors, construction workers, and tradespeople.
OVERVIEW, UPDATES,
STATISTICS OF THE
SPECIALIZED INDUSTRY IN THE
PHILIPPINES
The Construction sector is one of the important industries that the
government has been focusing on since 2016.

With the aim to build more infrastructure construction to help ease

traffic and trade across all regions.
One of the big tickets in the government's infrastructure development
plan is the Metro Manila Subway Project, which would be managed
by the DOTr, which would cost around 357 billion Philippine pesos.
The "Build Build Build" program which significantly introduces the
administration's intent to propel the country in achieving more
developed and connected life among Filipinos, have so far increased
the number of licenses for building contractors in the Philippines.
In terms of Residential units' supply, the number of condominium units within the major districts of
Metro Manila has shown high demand on property investments. among the highly urbanized cities of:
• Fort Bonifacio,
• Makati
• Bay area
• Ortigas Center were higher compared to Alabang, Araneta Center and Rockwell Center.
RESTRAINTS AND
CHALLENGES
The major challenge the government faces:
1. To boost the infrastructure spending and provide more incentives to the real estate
developers.

2. The fear of property bubble has been around for some time now and has limited the growth
of the market.
OPPORTUNITIES
Investing in real estate is considered as one of the best investments, globally. The size and
scale of the real estate market make it an attractive and lucrative market for many investors

The Philippines, being a developing economy, will never be short of opportunities and in
addition, more people are adopting urban lifestyles.
AUDIT CONSIDERATIONS
There are some steps management and owners can help make those audit kick-off
discussions as productive as possible:

1. Plan ahead for discussions with auditors.

2. Review major transactions and changes to internal controls and processes.
3. Prepare for changes in audit requests.
GOING CONCERN
CONSIDERATIONS
-While going concern is always an audit consideration, consider the pandemic and, at a minimum,
discuss with the audit team.
TECHNICAL COUNTING
CONSIDERATIONS
1. Rent Concessions:
• ITB - If tenants received rent concessions, they would directly offset revenue and the corresponding
account receivable.
• GAAP - The Financial Accounting Standards Board ("FASB*) has allowed for certain instances of rent
relief to tenants due to COVID-19 as if such relief was already included in the original lease agreement.
Thus, the entity may recognize the rent concession in the current period as opposed to accounting for it as
a lease modification
TECHNICAL COUNTING
CONSIDERATIONS
2. Rent Deferrals:
• ITB - If tenants received rent deferrals, this would merely impact the timing of cash collection from the
tenant and not impact when revenue is recognized by the entity.
• GAAP - There are generally two options regarding COVID-19-related rent deferrals. Account for the
deferral as if there are no changes to the lease contract, but merely a delay in cash receipts; account for
such deferral as an offset to revenue during the deferral months.
TECHNICAL COUNTING
CONSIDERATIONS
3. Tenant-Related Assets:
• Accounts Receivable - Perform a thorough evaluation of the collectability of accounts receivable. Under
ITB, once all collection efforts are exhausted, write off any uncollectible accounts receivable directly to
operations. An allowance for doubtful accounts is not permitted. For GAAP, record an allowance for
doubtful accounts against any receivable that may not be collectible
TECHNICAL COUNTING
CONSIDERATIONS
3. Tenant-Related Assets:
• Tenant Improvements - For ITB and GAP, identify tenant improvements relating to tenants who have
vacated and terminated their lease agreement during the year.
• Deferred Leasing Costs - For ITB and GAP, identify deferred leasing costs related to tenants who have
vacated and terminated their lease agreement during the year. Write off the remaining unamortized costs.
TECHNICAL COUNTING
CONSIDERATIONS
4. Deferred Financing Costs:
• Extinguishment - Generally, write off the carrying amount of existing deferred financing costs as of the
date of extinguishment. New costs incurred are capitalized and amortized over the term of the new loan.
• Modification - Generally, amortize over the term of the modified loan the carrying amount of existing
deferred financing costs as of the date of modification. Expense any new cost in the period of the
modification. However, under GAAP, capitalize new costs incurred and paid directly to the lender.
TECHNICAL COUNTING
CONSIDERATIONS
5. Asset Impairment:
For entities reporting under GAAP, perform an impairment analysis of assets if management determines a
"triggering event" has occurred.
 BEST PRACTICES
There are several things to keep an eye on in any year that will facilitate a successful audit season:

1.Management’s responsibilities:
• Review financial statements

• Design, implement and maintain internal controls

• Prepare and review a complete financial reporting package

2. Designate an audit point person from your team.

3. Verify the listing of accounts to be confirmed, including cash, debt and investment accounts.
 BEST PRACTICES
There are several things to keep an eye on in any year that will facilitate a successful audit season:

4. If the business has hard-to-value investments, prepare detailed supporting schedules and

documentation.

5. Discuss with your auditors if there are schedules or documentation you can provide in advance for

possible interim testing

MAIN INDUSTRY
ISSUES
01 02 03

Distressed assets PFRS, legal and Careful

other regulatory planning
compliance
MAIN INDUSTRY
ISSUES
04 05 06

Cost control and Measures to A strong focus

strong project optimize cash on quality and
management flow compliance
PFRS 15 REVENUE FROM
CONTRACTS WITH
CUSTOMERS
CONSIDERATIONS
PFRS 15 REVENUE FROM CONTRACTS
WITH CUSTOMERS CONSIDERATIONS
• Provides a comprehensive framework for recognizing revenue from customer contracts.
• It outlines principles that entities must follow when determining the timing and amount of
revenue to recognize from contracts with customers.
REPUBLIC ACT (RA) 6552

The Realty Installment Buyer Act, more commonly known

as the Maceda Law, provides remedies should the buyer
default from payment based on the payment
schedule initially agreed with the developer.
THANK YOU!