In the U.S., critical infrastructure protection (CIP) is a concept that relates to the preparedness and response to serious incidents that involve the critical infrastructure of a region or the nation. The American Presidential directive PDD-63 of May 1998 set up a national program of “Critical Infrastructure Protection”.[1] In 2014 the NIST Cybersecurity Framework was published after further presidential directives. Accounting for construction in progress when it is for an asset to be sold is slightly more complicated.

• Additionally, well chosen terrorist attacks can become easier and less costly than traditional warfare because of the interdependence of infrastructure elements.
• Because companies can store costs under the account for extended periods of time, they can avoid depreciation, therefore reports could have profits listed at a higher value than they really are.
• The latest version of the plan was produced in 2013 [12] The NIPP’s goals are to protect critical infrastructure and key resources and ensure resiliency.
• An accountant will report spending related to the construction-in-progress account in the “property, plant, and equipment” asset section of the company’s balance sheet.
• The U.S. Department of Defense is responsible for protecting its portion of the government’s critical infrastructure.

Remediation requirements are also gathered through lessons learned from Defense Infrastructure sector monitoring and reporting and infrastructure protection operations and exercises. Remediation activities to protect the critical Defense Infrastructure cross multiple Department components. Accounting for CIP can be challenging due to factors like estimation of costs, tracking the progress of multiple projects concurrently, and ensuring compliance with accounting standards. Organizations need robust systems and processes to accurately record and monitor CIP.

Progress Vs. Process

For a variety of different reasons, though, it can be difficult to match up billings with the amount of work that has been completed (or work in progress). If the business is building assets under contract to sell, they are inventory assets. what is cip in accounting Construction in progress is reported on the balance sheet as a separate line item, usually under the category of property, plant, and equipment. It represents the accumulated costs of ongoing construction projects that are not yet completed.

• CIP plays a crucial role in project management by providing real-time data on costs and progress.
• They were able to transfer $12 million from customer accounts and withdraw an estimated $400,000.
• Remediation requirements are also gathered through lessons learned from Defense Infrastructure sector monitoring and reporting and infrastructure protection operations and exercises.
• It is crucial for businesses to accurately track and record these costs to avoid misrepresenting their financial statements and to provide stakeholders with reliable information regarding ongoing projects.
• For each of these threats, the cascading effect caused by single points of failure has the potential to pose dire and far-reaching consequences.

Once a construction project is finished, the costs are transferred from the CIP account to an appropriate fixed asset account. However, businesses must carefully evaluate the advantages and disadvantages of using CIP and ensure compliance with accounting standards and principles. The accounting treatment of CIP requires careful attention to detail and adherence to accounting standards and principles. It is crucial for businesses to accurately track and record these costs to avoid misrepresenting their financial statements and to provide stakeholders with reliable information regarding ongoing projects. The capital costs include construction costs such as materials, labor and benefits, freight costs, interest incurred on construction loans, costs to prepare the site and professional fees related to the project. Expenses that are not specifically tied to the asset should be expensed in the accounting period they occur.

Depreciation

Carriage Paid To (CPT) is an Incoterm, which is a set of standardized international trade terms that are published by the International Chamber of Commerce. The carrier could be the person or entity responsible for the carriage (by sea, rail, road, etc.) of the goods or the person or entity enlisted to procure the performance of the carriage. The CPT price might include Terminal Handling Charges (THC) in their freight rates.

Whereas, if the account appears under the heading of ‘Inventory and assets,’ it is probably a ‘build to sell’ asset. According to the matching principle of accounting of accrual accounting, the expenses related to certain revenues must be recorded in the same period when they were incurred. All the costs of assets under construction are recorded in the ‘Construction In Progress Ledger Account.’ They are shifted to the asset side of the balance sheet from the ledger.

CIP Accounting Treatment

For each of the identified major sectors of the critical infrastructure, the federal government appointed a Sector Liaison Official from a designated Lead Agency. Together, the two sector representatives, one federal government and one corporate, were responsible for developing a sector NIAP. For example, the debt-to-equity ratio may increase during the construction phase due to increased borrowing for project funding. Additionally, metrics like return on assets (ROA) may fluctuate as CIP balances change. Construction-work-in-progress accounts can be challenging to manage without proper training and experience. Most companies hire a chief financial officer to maintain these records and avoid costly accounting errors.

To accomplish this one of the primary actions was to produce a National Infrastructure Assurance Plan, or NIAP, later renamed National Infrastructure Protection Plan or NIPP. No, CIP cannot be depreciated because it is not yet a complete and functional asset. Depreciation is only applicable to fixed assets that are expected to have a useful life and decline in value over time. In addition to knowing what construction in progress accounting is, you should also know what’s involved when recording the account. Like previously stated, the construction in progress account has a natural debit balance. It is crucial to record the expenditures in the accounting period in which they took place.