Capital projects can consume millions of dollars over several quarters or years. Yet a surprising amount of reporting risk appears at the boundary between project accounting and fixed-asset accounting: costs are capitalized without sufficient support, construction-in-progress (CIP) balances remain open after assets are ready, depreciation starts late, or project overruns and abandoned work are not assessed promptly.
For a US or Canadian controller, the objective is to maintain a reliable chain from approved capital authorization to project spend, asset recognition, placed-in-service evidence, depreciation and eventual disposal. This requires coordination across Finance, Engineering, Operations, Procurement, Tax and IT—not just a fixed-asset subledger.
This guide sets out ten controls for capital projects, with practical considerations for US GAAP, IFRS, Canadian ASPE and SAP S/4HANA.
1. Establish a controlled capital-project approval process
Every material project should have an approved business case, budget, owner, expected useful outcome, funding source, location, asset class and expected in-service date. Approval should be obtained before commitments are made, with separate authorization for material scope, budget or timing changes.
Finance should distinguish capital expenditure from operating expenditure at the project setup stage. A project code or WBS element is a tracking mechanism, not evidence that every cost charged to it qualifies for capitalization. Define the capitalization policy, thresholds and approval limits in a way that is consistent with the applicable reporting framework.
2. Define the asset boundary and unit of account
One project may create several assets with different useful lives and readiness dates. A manufacturing expansion, for example, may include the building shell, production line, electrical infrastructure, material-handling equipment and control systems. Treating the entire project as one asset can obscure component lives and delay depreciation on completed portions.
Under IAS 16, significant parts of an item of property, plant and equipment with costs significant in relation to the total cost are depreciated separately. US GAAP under ASC 360 permits component or group approaches but does not impose the same mandatory component-depreciation requirement as IAS 16. Canadian ASPE Section 3061 has its own cost and amortization requirements. Document the unit-of-account conclusion rather than assuming the same asset register structure works for every reporting basis.
3. Apply a documented capitalization test to project costs
Require project accountants to review the nature of costs, not simply the cost center or project number. Costs directly attributable to acquiring, constructing or preparing an asset for its intended use may qualify for capitalization under the relevant framework. Examples can include purchase price, freight, site preparation, installation, engineering and qualifying testing.
Costs such as general administration, staff training, advertising, opening a new facility, initial operating losses and abnormal waste generally require expense treatment rather than automatic capitalization. The precise conclusion depends on the facts and the applicable standard. Repairs and routine maintenance should not be capitalized merely because they occur during a major project; a betterment or replacement may require a separate asset assessment.
Use a project cost code structure that distinguishes equipment, construction labor, engineering, commissioning, training, travel, overhead, maintenance and other spend categories. Configure blocked or review-required categories where the ERP can support them.
4. Reconcile commitments, invoices, receipts and project actuals
Project actuals should be reconciled to purchase orders, goods receipts, service-entry sheets, vendor invoices, payroll allocations and approved change orders. Review open commitments and unbilled receipts so the project forecast is not understated and the close does not miss costs already incurred.
Investigate duplicate invoices, costs posted to the wrong WBS element, personal or general overhead charged to a project, and invoices received after the project has been placed in service. For internal labor, retain approved time records and a documented basis for identifying directly attributable effort. Do not use a blanket percentage of employee time without support.
5. Control construction-in-progress and asset-under-construction balances
Maintain a project-level CIP or asset-under-construction (AuC) rollforward showing opening balance, current additions, transfers, disposals or write-offs, and closing balance. Reconcile it to the general ledger each period. Each balance should have a project owner, status, approved budget, expected completion date and last activity date.
Review aged and inactive projects every month. A project with no recent invoices may be complete, paused, cancelled or awaiting a final vendor claim. Obtain an explanation from the project owner and assess whether the costs remain recoverable and whether impairment or write-off indicators exist. Do not allow a project to remain in CIP indefinitely because no one owns the close-out process.
6. Assess borrowing-cost capitalization separately
Borrowing-cost rules are not simply a matter of applying the company’s average interest rate to every project. Under US GAAP, evaluate qualifying assets and the capitalization period under ASC 835-20. Under IFRS, IAS 23 requires borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset to be included in the asset’s cost; other borrowing costs are expensed. Canadian ASPE has separate requirements, including Section 3061, and should be assessed independently.
Maintain a controlled schedule showing eligible expenditures, funding and borrowing-rate assumptions, capitalization start and stop dates, and reviewer approval. Document periods when construction activity is suspended and assess the applicable framework’s requirements. Reconcile capitalized interest to the debt schedule and project ledger to avoid both omission and double counting.
7. Set a formal ready-for-use and placed-in-service control
The date an invoice is paid, a project is financially closed or a grand-opening event occurs is not automatically the accounting date for depreciation. The controller needs evidence that the asset—or a separately usable component—is in the location and condition necessary for its intended operation under the applicable framework.
Use a commissioning and handover certificate signed by Engineering and Operations. Supporting evidence may include successful testing, safety and regulatory approvals, occupancy permits, production acceptance, system integration sign-off and confirmation that only routine or immaterial work remains. Where an asset can operate independently from the rest of the project, assess whether it should be transferred and depreciated separately.
Do not defer depreciation merely because the project manager has not submitted the final invoice or closed the project code. Conversely, do not activate an asset solely because the budget is exhausted if essential installation or testing remains incomplete.
8. Review useful lives, components and depreciation configuration
At activation, verify asset class, useful life, residual value, depreciation method, start date, location, cost center and responsible owner. For significant components under IFRS, establish separate records where their useful lives or consumption patterns differ. Under US GAAP and ASPE, apply the relevant requirements and documented accounting policy rather than importing an IFRS component schedule automatically.
Depreciation should reflect the asset’s expected pattern of consumption. Review useful lives and residual values when facts change—for example, a production line is expected to be replaced earlier than planned or a building component has a different replacement cycle. Ensure book depreciation is maintained separately from tax depreciation where tax rules differ.
9. Configure SAP S/4HANA project settlement and asset transfers carefully
For organizations using SAP S/4HANA, an investment project and WBS structure can collect project costs and support periodic settlement to an AuC, followed by final settlement to one or more completed assets. SAP documentation describes both periodic and event-based settlement options and recommends using investment-project integration for managing AuC in the documented cloud process.
Finance and IT should jointly test investment profiles, WBS-to-AuC assignments, settlement profiles, source structures, distribution rules, receiver asset classes and account determination. Restrict changes to settlement rules and asset master data. Review settlement logs, failed postings and unusual receiver allocations before the close is certified.
Retain a traceable link from vendor invoice or payroll posting through the WBS element, AuC, final asset master and depreciation run. Test partial settlements and projects that create multiple assets. Do not assume every SAP deployment or release uses identical apps, configuration or settlement behavior; validate the design against the organization’s specific S/4HANA edition and release.
10. Close projects and monitor post-completion activity
Project closure should include a final cost review, open purchase-order and commitment cleanup, review of accruals and claims, final settlement, asset-register reconciliation and approval to close the project code. Keep the project available for controlled late adjustments where necessary, but route those adjustments through review rather than leaving unrestricted posting open.
After activation, monitor additional invoices, warranty work, change orders and commissioning costs. Determine whether they relate to the original asset, a separate asset, a betterment or normal operating expense. For IFRS reporters, remember that IAS 16 was amended for proceeds from selling items produced while preparing an asset for intended use: from annual reporting periods beginning on or after 1 January 2022, those proceeds and related costs are recognized in profit or loss rather than deducted from the asset’s cost.
Framework checkpoints for US and Canadian controllers
| Framework | Key controller considerations |
|---|---|
| US GAAP | Apply the FASB Codification, including ASC 360 for property and equipment and ASC 835-20 for interest capitalization. Document cost basis, useful lives, depreciation method, readiness and impairment assessments. |
| IFRS | Apply IAS 16 for recognition, cost, component depreciation and available-for-use timing; apply IAS 23 for qualifying borrowing costs. Account for proceeds before intended use under the amendment effective from 1 January 2022. |
| Canadian ASPE | Apply Section 3061 to tangible capital assets, including cost and amortization. Do not substitute IFRS component accounting or tax CCA treatment for the applicable ASPE requirements. |
For US and Canadian tax compliance, maintain a separate tax fixed-asset schedule. US tax placed-in-service rules and Canada’s capital cost allowance available-for-use rules are not substitutes for financial-reporting recognition and depreciation conclusions.
Month-end capital-project checklist
- Are new projects and material scope changes properly approved?
- Do project costs reconcile to procurement, receiving, payroll and accounts payable records?
- Are non-capitalizable costs and unusual allocations identified and reviewed?
- Are aged or inactive CIP balances supported by current project-owner explanations?
- Have eligible borrowing costs and capitalization periods been reviewed?
- Have completed assets or independently usable components been assessed for activation?
- Are commissioning and ready-for-use dates supported by evidence?
- Are asset classes, useful lives, depreciation methods and cost centers independently reviewed?
- Do SAP settlement logs and AuC-to-fixed-asset transfers reconcile to the GL?
- Are project close-out, impairment and post-completion costs documented?
Conclusion
Capital-project accounting is strongest when approval, cost capture, capitalization, commissioning and asset activation operate as one controlled process. A disciplined CIP review and evidence-based ready-for-use decision protect both the balance sheet and the timing of depreciation. For multinational groups, the same project data can support multiple reporting frameworks, but the accounting conclusions must remain framework-specific.
Disclaimer: This article is for general informational purposes only and is not accounting, tax or legal advice. Apply the current authoritative guidance and entity-specific accounting policies to the facts of each project.
Sources and further reading
- FASB — Accounting Standards Codification and standards resources. The Codification is the authoritative source of nongovernmental US GAAP.
- IFRS Foundation — IAS 16 Property, Plant and Equipment.
- IFRS Foundation — IAS 23 Borrowing Costs.
- IFRS Foundation — Property, Plant and Equipment: Proceeds before Intended Use.
- BDO Canada — ASPE Section 3061: Property, Plant and Equipment. Use alongside the current CPA Canada Handbook.
- SAP Help Portal — Assets Under Construction: Management and Settlement.
- SAP Help Portal — Settlement of Investment Projects.
- IRS — Publication 946: How To Depreciate Property and CRA — Available for Use Rules for separate tax timing considerations.
