Do you think that W S Atkins is adopting a conservative (i.e. prudent) accounting approach when it capitalizes building costs ‘from the point at which its consortium is appointed sole preferred bidder and when such costs may be seen with virtual certainty as recoverable at financial close’? Is there such a thing as ‘virtual certainty’?

This news story deals with two companies (Capita and W S Atkins) both of whom are involved in the construction industry. If a contract takes longer than one year to complete, at what point should the company take any expected profit? A prudent approach would be to wait until the contract has finished. A highly imprudent one would be to take all the expected profit when the contract was signed. The accountancy profession’s answer is to take some profit on account provided certain conditions are met.