Introduction
Assets under construction are the quiet line in the PP&E note that auditors read first because it is the one balance in fixed assets that is still moving. Understanding assets under construction IFRS requirements is central to accurate recognition, measurement, and disclosure. In many jurisdictions, the same balance is referred to as CWIP, while under IFRS it is commonly presented as assets under construction, making AuC accounting an important part of fixed asset reporting.
Assets under construction (AuC) are items of property, plant and equipment that are still being built or installed and are not yet ready for their intended use. Under IFRS, assets under construction are disclosed as a class within the PP&E note, carried at cost, and not depreciated until the asset is available for use.
In this guide
- What assets under construction (AuC) are, how they are presented under IFRS, and how AuC differs from CWIP and CIP across reporting frameworks.
- How to capitalize eligible project costs, apply borrowing cost requirements, and account for AuC under IAS 16, IAS 23, and FRS 102.
- Why strong project controls, cost coding, periodic reviews, and readiness assessments are essential for accurate AuC accounting and timely capitalization.
- How to transfer assets from AuC to fixed assets, begin depreciation at the correct time, and meet IFRS disclosure requirements.
What are assets under construction (AuC)?
Assets under construction are fixed assets the business is still building and should not be confused with WIP accounting for inventory, which deals with partly finished goods rather than capital assets. Examples include a factory extension at second fix, a production line being installed, or a data hall being fitted out.
Their costs accumulate in an AuC account from the first eligible expenditure until the asset is ready for its intended use. At that point the balance transfers to the operating asset class, and depreciation begins.
AuC is carried at cost. It is impairment-tested like any other asset, but it is never written down to a selling value; it is not inventory, and it is not held for sale.
Where does the term AuC come from?
Two places, which is why the term dominates UK and European reporting.
First, IFRS practice: IAS 16 illustrates PP&E note disclosure by class, and ‘assets under construction’ or ‘assets in the course of construction’ is the class name UK and European annual reports have standardised on.
Second, SAP: FI-AA uses ‘Assets under Construction’ as a dedicated asset class, with its own settlement process from projects into final assets. Two decades of SAP-based finance teams made AuC the default word for the balance.
The SAP mechanics of AuC asset classes, WBS settlement, and the AIAB and AIBU transactions relate to system configuration rather than accounting.
AuC in the financial statements
IFRS does not require a separate balance-sheet line for AuC. The balance sits inside property, plant and equipment, and the detail lives in the PP&E note.
Two disclosures carry it:
- The IAS 16.73 reconciliation shows AuC as a class column: additions, transfers to operating classes, and the closing balance.
- IAS 16.74(b) requires disclosure of expenditure recognised on PP&E in the course of its construction.
A typical UK note shows an ‘Assets under construction’ column whose transfers-out row feeds the buildings and plant columns; that row is the year’s capitalisation activity in one number.
Reporting under the Companies Act in India instead? Companies report the same balance as a separate line called CWIP and include the mandatory ageing schedule described in capital work in progress (CWIP).
AuC vs CWIP vs CIP: the terminology bridge
Three names, one concept. The differences that matter are presentation and disclosure, not accounting substance:
Term | Reporting tradition | Presentation |
| AuC: assets under construction | IFRS / UK / SAP environments | Class within the PP&E note; no mandated separate line or ageing |
| CWIP: capital work in progress | India, Companies Act | Separate balance-sheet line + Schedule III ageing and completion schedules |
| CIP: construction in progress | US GAAP | Within PP&E; ASC 835-20 capitalized-interest computation |
Multinational groups hit this constantly: the UK consolidation says AuC, the Indian subsidiary files CWIP with an ageing schedule, and the US entity computes avoidable interest for CIP.
Which costs enter AuC under IAS 16
The key test is whether the cost is directly attributable to bringing the asset to the location and condition necessary for it to operate as management intends (IAS 16.16).
Companies typically capitalize contractor valuations for work performed, equipment being installed, site preparation, professional and engineering fees, and testing costs.
Out, always: general overheads, training, relocation, initial operating losses, and abnormal wastage. Advances to contractors are prepayments, not construction performed.
Borrowing costs on qualifying assets are capitalised under IAS 23 mandatorily, between commencement and cessation, with suspension during extended pauses.
UK GAAP: FRS 102 for assets under construction
UK companies outside IFRS apply FRS 102, and two sections carry the AuC rules. Section 17 governs the asset’s cost on the same directly-attributable logic as IAS 16, with capitalisation ceasing when the asset is ready for use.
Section 25 is where UK GAAP genuinely departs from IFRS in three ways worth knowing:
Point | IAS 23 (IFRS) | FRS 102 Section 25 (UK GAAP) |
| Capitalising borrowing costs | Mandatory for qualifying assets | Accounting policy CHOICE: capitalise or expense, applied consistently per class of qualifying asset |
| Investment income on unapplied borrowings | Deducted from borrowing costs on specific borrowings | Deducted likewise where the policy is to capitalise |
| Loan arrangement fees | Part of the effective interest cost | Netted against the loan liability, not capitalised into the asset |
A UK group can capitalise borrowing costs on buildings under construction but expense them for machinery; the class-by-class consistency rule allows it, and the policy note must say so.
One currency point: a new edition of FRS 102 applies for periods beginning on or after 1 January 2026, so confirm section references against the edition you report under.
Book versus tax capital allowances. UK tax relief on capital projects comes through capital allowances, the Annual Investment Allowance, full expensing for qualifying plant and machinery, and writing-down allowances- not through the accounting depreciation that starts at readiness.
Allowance timing follows tax rules on expenditure incurred, not the AuC transfer date, so capture the tax analysis during the project rather than reconstructing it after. Take specific advice; the regimes move.
Controls for capital projects
AuC balances rarely go wrong because someone misread IAS 16. They go wrong because project controls are thin, and the balance quietly absorbs whatever is coded to it.
Four control clusters keep it clean:
- Project setup– Board approval with a budget and completion date, a project code mapped to the AuC class, a component plan for the final assets, and the borrowing-cost policy confirmed before the first invoice.
- Cost coding– Eligibility tested at invoice entry: directly attributable or rejected, and every cost posted against the project object, never a generic pool.
- Periodic review– Physical progress compared to cost consumed each month, budget changes re-approved, stalled projects flagged, and the AuC register aged at every close.
- Transfer discipline– Readiness tested per separable part, capitalisation cut off at the ready date, and depreciation running from readiness rather than from project closure.
The failure pattern behind aged AuC is the same everywhere: assets already operating while the in-service event goes uncaptured, and project systems holding costs with no lineage to the final asset.
Those two problems late readiness capture and broken project lineage have their dedicated treatments in place: in service vs ready for use and CWIP to fixed asset transfer.
From AuC to in service: the transfer
The trigger is availability for use: the asset is in the location and condition necessary to operate as management intends. Not practical completion of the whole programme, and not the final account with the contractor.
Where project parts finish separately, each ready part transfers on its own date, stopping borrowing-cost capitalization for that part.
CWIP to fixed asset transfer covers the seven-step process, ready-for-use certificate, and audit evidence; the process remains identical.
AssetCues captures readiness, evidence, project lineage, and ready-not-capitalized assets while SAP, Oracle, or your ERP remains the system of record. If capital projects are a recurring close headache.
How to account for assets under construction: 6 steps
- Set the project up properly: approval, budget, completion date, project code mapped to the AuC class, and a component plan.
- Capitalise only directly attributable costs, tested at invoice coding and confirm your borrowing-cost treatment (mandatory under IAS 23; a documented policy choice under FRS 102).
- Post every cost against the project object so the balance retains lineage to the final assets.
- Review monthly: progress versus spend, budget changes re-approved, ageing refreshed, stalled projects flagged.
- Test readiness per separable part and transfer each part when it is available for use, stopping capitalisation at that date.
- Disclose per IAS 16.73–74 the AuC class column and construction expenditure, or per FRS 102’s equivalent note.
Key takeaways
- AuC, CWIP and CIP describe the same balance in different reporting traditions. AuC is the IFRS, UK and SAP vocabulary.
- IFRS mandates no separate balance-sheet line: AuC appears as a class within the PP&E note, and its expenditure is disclosed under IAS 16.74(b).
- AuC is not depreciated. Depreciation starts when the asset is available for use, per asset or separable part.
- Under FRS 102, capitalising borrowing costs is a policy choice; under IAS 23 it is mandatory for qualifying assets, a real UK GAAP difference.
- AuC balances go wrong through weak project controls; not weak standards approval, coding, review and transfer discipline decide the outcome.
Conclusion
Managing assets under construction requires consistent cost recognition, timely readiness assessments, and disciplined project controls throughout the asset lifecycle. Applying IFRS for Assets under Construction and strong AuC accounting ensures correct capitalisation, timely transfers, and accurate financial reporting.
This approach improves compliance, strengthens audit readiness, and supports reliable capital project management.
FAQs on assets under construction
Q1. Do you depreciate assets under construction?
Ans. No. Assets under construction are not depreciated because depreciation begins only when an asset is available for use in the location and condition necessary to operate as management intends. Each separable part starts depreciating from its own ready date.
Q2. Where do assets under construction appear in the balance sheet?
Ans. Under IFRS, assets under construction appear within property, plant and equipment, shown as a separate class in the PP&E note rather than as a distinct balance-sheet line. IAS 16.74(b) also requires disclosure of the expenditure on assets in the course of construction.
Q3. What is the difference between AuC and CWIP?
Ans. AuC and CWIP describe the same balance in different reporting traditions. Assets under construction is the IFRS, UK and SAP vocabulary, disclosed as a PP&E class, while capital work in progress is the Indian Companies Act term, presented as a separate balance-sheet line with a mandatory ageing schedule.
CA Sunny Shah
