14–11. Prescreen Construction-in-Progress Entries
A great many entries are made to construction-in-progress (CIP) accounts, because a vast number of expense items are required as part of the standard construction progress. However, the sheer volume of entries makes it an opportune area in which to park expenses that should instead be charged to the current period, rather than to a CIP account that may not commence depreciation for over a year.
To avoid this problem, pre-screen CIP-related entries when they are first entered into the system. This screening process can take on one of two roles. First, it can result in items being shifted away from the CIP account and charged to expense at once, because they do not qualify under GAAP rules to be included in CIP. Second, the screening process can be used as a tracking mechanism for the entire CIP, but it shunts items to be charged to current period expenses into one subaccount, while qualified CIP expenses are stored in a separate subaccount. This latter approach has the dual advantages of ensuring that the correct costs are charged to expense within the current period, while still accumulating all costs related to a CIP.
There should be only one or a few people assigned to this gatekeeper role, because it needs to be occupied by a person with an extensive knowledge of GAAP CIP rules. If cost constraints do not allow for a person in the prescreening role, then at least have the internal audit staff conduct the same sort of examination ...