The main audit risk in a development company is revenue timing. In the common Polish residential model, revenue is recognised when ownership transfers, usually through the notarial deed. Earlier recognition requires a robust IFRS 15 analysis.
IFRS 15, local GAAP and IAS 23
Development activity brings together revenue recognition, inventory valuation and borrowing cost capitalisation. IFRS 15 determines when control transfers to the buyer. IAS 23 governs borrowing costs capitalised into qualifying assets. Local Polish GAAP and KSR guidance follow a similar economic logic for WIP and cost allocation.
| Area | Audit focus |
|---|---|
| IFRS 15 | Whether revenue is recognised point in time or over time. |
| WIP | Completeness of costs and documented allocation to units or stages. |
| IAS 23 | Whether borrowing costs qualify for capitalisation and when capitalisation stops. |
| NRV | Whether carrying value exceeds expected selling price less costs to complete and sell. |
Revenue: over time vs point in time
The auditor asks whether the customer obtains control as construction progresses or only at legal transfer. For ordinary apartment sales, the buyer usually does not control the asset during construction, so revenue is recognised at a point in time. The developer agreement is a commitment to transfer ownership in the future; it does not by itself transfer control.
Exceptions may include build-to-suit projects on the customer's land, certain PRS contracts or public-sector housing projects. Those require contract-by-contract analysis and legal support for the right to payment for work performed to date.
WIP valuation
Developer WIP accumulates land, design, construction, project management and eligible financing costs until units are sold. The most common audit issue is undocumented allocation of common costs between units, buildings or project stages.
- Reconcile general contractor invoices and subcontractor costs to the WIP schedule.
- Separate selling and general administrative costs from inventory.
- Document cost allocation keys for shared infrastructure and phases.
- Perform an NRV test for every material project.
- Identify suspended or delayed projects requiring impairment.
Land and borrowing costs
Land acquired for development is inventory. It is not depreciated, but it must be written down when net realisable value falls below carrying amount. A suspended project, adverse zoning change or loss of an institutional buyer can trigger a write-down.
Borrowing costs are capitalised only while a qualifying asset is being prepared for intended sale or use. Capitalisation should stop when the asset is ready and should be suspended during extended construction interruptions.
Pre-audit checklist for developers
- Project-by-project revenue recognition memo under IFRS 15.
- WIP roll-forward by project, building and unit type.
- Cost allocation methodology for common costs.
- NRV test with selling prices, costs to complete and selling costs.
- Borrowing cost capitalisation calculation under IAS 23.
- List of suspended projects and land held for future development.
Frequently asked questions
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