Auditing capital work-in-progress means ageing every open project to identify balances that have stalled for an extended period, testing that costs sitting in CWIP genuinely relate to assets not yet ready for their intended use, checking that borrowing costs have been capitalised correctly under Ind AS 23 where applicable, and verifying the CWIP ageing schedule now required under Schedule III accurately reflects how long each project has actually been in progress. A CWIP balance is, by definition, incomplete work — the audit question is whether it is still genuinely in progress or has quietly become a parking place for cost that should be written off or questioned.
Why CWIP is a higher-risk balance than it looks
CWIP sits outside the depreciation cycle entirely while it remains open, which is exactly why it can hide problems for years. An asset once capitalised starts depreciating and drawing attention through the normal fixed asset procedures; a project sitting in CWIP generates no depreciation, no useful-life question, and often no scrutiny beyond a year-on-year roll-forward of the same opening balance plus whatever was added that year.
Ageing CWIP — the first and most revealing procedure
Before testing individual additions, age the entire CWIP balance by the date each component was first capitalised into CWIP, not by the date of the latest addition to the project. A project that received a small addition this year but has otherwise been dormant for three years should age as three years old, not as current.
| Age of balance | What it typically indicates | Audit response |
|---|---|---|
| Less than 1 year | Normal — most capex projects take months to complete | Standard testing of additions and capitalisation trigger |
| 1–2 years | A longer-than-typical project, or early signs of delay | Ask management for the current project timeline and compare to the original plan |
| 2–3 years | A project behind schedule, possibly suspended | Obtain a specific status update; consider whether cost incurred to date is still recoverable |
| More than 3 years | Often effectively abandoned or indefinitely shelved | Consider impairment indicators directly; a write-down or write-off conversation with management is usually overdue |
A CWIP balance that has not moved in over three years, with no commissioning date in sight and no active work orders against it, is rarely still a genuine asset-in-progress. It is cost that was capitalised, possibly correctly at the time, for a project that has since lost its future. Carrying it forward unchanged year after year, without an impairment conversation, is one of the more common quiet errors in a mid-market fixed asset audit.
Testing the capitalisation trigger
- 01Confirm costs sitting in CWIP relate to assets not yet ready for useTrace a sample of CWIP additions to supporting invoices and work orders, and check that the related plant, building or equipment has genuinely not been commissioned — not that it is simply convenient to keep it out of the depreciable register for another period.
- 02Identify assets ready for use but still sitting in CWIPAsk operations, not just accounts, which projects are running production or are in active use. An asset that has started commercial production while its cost remains in CWIP understates depreciation for every month the transfer is delayed.
- 03Check the trigger date used when a transfer is madeThe move from CWIP to the fixed asset register should happen when the asset is ready for its intended use, which is not necessarily the date of final payment, the date of the completion certificate, or the date trial runs ended — it is the date the asset was capable of operating as intended, evidenced by commissioning records, trial production output, or the first commercial dispatch.
- 04Reconcile CWIP movement for the yearOpening balance plus additions, less amounts transferred to fixed assets, less any write-off, should equal the closing balance. A roll-forward that does not reconcile cleanly usually means a transfer was booked directly to the fixed asset register without going through CWIP, or vice versa.
Borrowing cost capitalisation under Ind AS 23
Where a project is financed by borrowings directly attributable to it, Ind AS 23 requires the related borrowing cost to be capitalised as part of the asset's cost, rather than expensed as incurred, for as long as the asset is a qualifying asset under active development. For a mid-market client this most often arises on a specific term loan taken for a plant expansion or a new facility.
- Identify borrowings that are directly attributable to a specific CWIP project, as opposed to general-purpose working capital borrowing.
- Where borrowing is specific, capitalisation is the actual borrowing cost incurred on that borrowing, less any income earned on temporarily investing the unused funds.
- Where a project is funded from general borrowings rather than a specific loan, a weighted average capitalisation rate applied to the expenditure on the asset is used instead — check that the rate used is actually derived from the company's borrowings for the period, not an arbitrary figure.
- Capitalisation must suspend during extended periods when active development is interrupted — this is the condition most often missed on a stalled project, where interest continues to be capitalised on a project that has, in substance, been paused.
- Capitalisation stops once the asset is substantially complete and ready for its intended use, even if formal commissioning or administrative closure happens later.
Regulatory requirement
Ind AS 23 requires suspension of borrowing cost capitalisation during extended periods in which active development of a qualifying asset is interrupted, and cessation once the asset is substantially complete and ready for its intended use. A stalled project that continues to carry capitalised interest without active development is a direct departure from this requirement.
The CWIP ageing schedule in the financial statements
Schedule III to the Companies Act now requires companies to disclose an ageing schedule for capital work-in-progress, splitting the balance into bands by how long each component has been in progress, and separately disclosing projects where completion is overdue against the original plan. Testing this disclosure is a direct extension of the ageing work already performed for audit purposes — the bands in the note should tie to the same analysis.
| Disclosure element | What to verify |
|---|---|
| CWIP split by age bands (commonly under 1 year, 1–2, 2–3, more than 3 years) | That the bands agree to the ageing analysis performed independently by the audit team, not just management's own unverified schedule |
| Projects overdue compared to their original planned completion date | That every project aged beyond two to three years is actually assessed against this test, not silently excluded from the 'overdue' category |
| Reasons for delay, where disclosure requires them | That the stated reason is consistent with what operations and project teams actually report, not a generic explanation |
How we think about this
Computing the age of every CWIP component from its original capitalisation date, and flagging every project that crosses a threshold, is exactly the sort of exhaustive, repeatable arithmetic that should run across the whole CWIP ledger automatically rather than depend on someone remembering to check the oldest-looking line items. Whether a stalled project still has a future, and what that implies for impairment, is a judgement the audit team has to make with management, informed by the ageing rather than replaced by it.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- Fixed assets & capexCapex vs revenue expenditure: the audit testThe capitalisation criteria, the repairs-versus-improvement judgement calls that actually come up, and how to sample repairs and maintenance for misclassified capex.
- Fixed assets & capexFixed asset register audit: completeness and accuracy checksWhat a fixed asset register must contain, how to tie it to the general ledger, and the gaps that quietly survive year after year if nobody checks for them.
- Fixed assets & capexImpairment testing for fixed assets: a practical approachThe impairment indicators that actually matter for a mid-market client, when a formal test is genuinely warranted, and how to test management's recoverable amount workings.
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