The date a project becomes an asset is not the date on the certificate

While a project is being built, the money spent on it sits in a holding account. Assets under construction, capital work in progress, projects under execution: the label varies, the function does not. It is a place to accumulate cost for something that is not yet an asset, and nothing in it is depreciated, because there is nothing yet to depreciate.

At some point the balance moves out of that account and becomes an asset in the register, with a class, a useful life and a depreciation charge that starts running. That transfer has a date. Somebody chooses it, and in most organisations nobody can say who.

What the standard actually tests

IPSAS 45, which replaced IPSAS 17 with effect from 1 January 2025, is specific. Paragraph 17 says that recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the item is in the location and condition necessary for it to be capable of operating in the manner intended by management. AG27 uses the same words for the other side of the entry: depreciation begins when the asset is available for use, meaning when it is in that same location and condition.

Two things follow that are worth stating plainly.

The test is capability, not use. Paragraph 17 goes on to exclude from the carrying amount any costs incurred while an item capable of operating has yet to be brought into use, or is operated at less than full capacity. So an asset that is finished, capable, and sitting empty has still left work in progress. Waiting for occupation is not a reason to hold the balance.

And the test is a state, not an event. Nothing in the standard mentions a certificate.

Six dates argued for in practice as the point at which construction work in progress becomes an asset. Five are contractual or physical events. Only the last is the test IPSAS 45 sets, which is whether the asset is in the location and condition necessary to be capable of operating in the manner intended by management.

Candidate date	Commonly used	The test the standard sets
Practical or substantial completion certified
Taking-over certificate issued
Contractor demobilised from site
Final account agreed and the contract closed
Asset brought into use, or occupied
In the location and condition to be capable of operating

The first five are documents and events, each with a date somebody can write down. The sixth is a state, and it has to be judged. That is the whole of the difficulty, and it is why the transfer is so often booked against a certificate that tested the building rather than the capability.

Why the certificate wins anyway

This is the same substitution that governs readiness, and it happens for the same reason. A certificate has a date, an author and a file reference. Capability has none of those. When a finance team asks a project team when the asset became available for use, the answer that can be evidenced is the certificate, so the certificate is the answer that gets given.

The same substitution, on the readiness side of the same boundary

, read: Operational readiness has seven conditions. Handover delivers two.Operational readiness has seven conditions. Handover delivers two.

The evidence for the capability date already exists, in the commissioning file

, read: The evidence finance needs is in a file finance never seesThe evidence finance needs is in a file finance never sees

The two dates can be months apart in either direction, and both directions do damage.

Transfer too early and depreciation begins on something that cannot yet be operated. The expense is real, the service potential it is supposed to represent is not, and the useful life starts eroding before anybody has had use of the asset. Transfer too late and cost keeps accruing in work in progress after it should have stopped, no depreciation is charged on an asset that is being used, and the balance becomes a place where things are parked rather than a place where things are built.

Where the asset's operation, maintenance, replacement and disposal are recorded, and under which rules

, read: What capital figures record, and what they leave elsewhereWhat capital figures record, and what they leave elsewhere

What is being asked of Gulf entities now

None of this is theoretical in the region. Saudi Arabia's Ministry of Finance has published the guidance, in Arabic, and it is explicit.

The Comprehensive Guide for the Inventory and Valuation of Assets for Government Entities sets out a procedure for projects under construction: their costs accumulate as projects under execution and are capitalised when the asset is ready to be put into service. It stops adding costs to the carrying amount at the point the standard uses, when the item is in the location and condition necessary for it to be capable of operating in the manner intended by management. The same guide lists a register of the assets of projects under execution among the outputs of the census, as a separate item from the fixed asset register.

It is also candid about why. Among the problems the initiative was created to address, the guide lists the unavailability of detailed progress reports on capital projects under execution. The gap was identified by the finance ministry, in a published document, before anybody outside noticed it.

A prior question: what counts as an asset at all

Before a balance can be transferred, something has to qualify as an asset, and the recognition threshold is where a second, avoidable cost appears.

IPSAS 45 paragraph 8 declines to prescribe a unit of measure for recognition, and says judgement is required. It then offers an option that deserves more attention than it gets: an entity may aggregate individually insignificant items and apply the recognition criteria to the aggregate value. The examples the standard chooses are library books, computer peripherals and small items of equipment.

The Saudi FAQ guide, issued June 2024, transposes that directly. Items costing less than the capitalisation threshold are expensed in the period incurred. Items meeting the definition of property, plant and equipment but falling below the threshold are recognised as inventory, expensed on issue from stores, and tracked in a control register rather than the asset register. Individually immaterial items, and it names the same three categories, are recognised in aggregate.

So the published answer to whether an entity should tag, classify and depreciate individual desks and monitors is no. It is in the international standard and it is in the national guidance, and the guidance goes further: among the things to consider before valuing an asset, it lists the estimated cost of the valuation exercise itself.

It is worth knowing why the standard leaves the threshold open rather than naming a figure, because the silence is usually read as an oversight and it is not one.

Read that carefully and the burden changes owner. The standard does not require an entity to capitalise anything immaterial. It hands the judgement to management and names cost against benefit as one of the tests management is expected to apply. An organisation inventorying items worth a few hundred each has not been compelled to do so. It has declined to make the judgement the standard gave it, and a threshold nobody sets defaults to zero.

What the effort spent on immaterial items is not being spent on

, read: Counting desks while the useful life goes unexaminedCounting desks while the useful life goes unexamined

That is a whole argument on its own and it deserves separate treatment. The point here is narrower. An entity that has capitalised the wrong things has also made its work in progress harder to resolve, because the register it is transferring into is full of items that were never supposed to be in it.

What to examine

• Ask who sets the transfer date, by name. If the answer is that finance takes it from the completion certificate, the capability test is not being applied, it is being approximated.
• Ask for the ageing of the work in progress balance. Anything sitting there beyond the construction period is either an asset that should have transferred or a cost that should have been written off, and neither improves with time.
• Ask whether anything has ever transferred on a date other than a certificate date. If not, judgement is not being exercised anywhere in the process.
• Ask what the capitalisation threshold is and whether the register obeys it. Then ask what it cost to inventory the items that fall below it.

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Sources. IPSASB, IPSAS 45, Property, Plant, and Equipment, issued May 2023 and effective for annual financial statements covering periods beginning on or after 1 January 2025, replacing IPSAS 17. Paragraph 8 for the unit of measure and the aggregation of individually insignificant items, naming library books, computer peripherals and small items of equipment. Paragraph 14(b) for costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Paragraph 17 for cessation of cost recognition, and paragraph 17(a) for the exclusion of costs incurred while a capable item has yet to be brought into use or is operated at less than full capacity. Paragraph AG27 for depreciation beginning when the asset is available for use. The standard is published free by IFAC as part of the IPSAS handbook.

Ministry of Finance, Kingdom of Saudi Arabia, Accrual Accounting Center, The Comprehensive Guide for the Inventory and Valuation of Assets for Government Entities, the edition marked «الطبعة الثانية» and published by the ministry, page 7 for the stated problem of unavailable progress reporting on capital projects under execution, page 35 for the register of the assets of projects under execution, and page 204 for the treatment of projects under construction. And The Frequently Asked Questions Guide for the Asset Inventory, Stocktaking and Valuation Initiative in Government Entities, first edition, June 2024, for the treatment of items below the capitalisation threshold, the inventory and control register route, the aggregation of individually immaterial items, and the instruction to consider the cost of the valuation exercise. Both are published in Arabic; the ministry maintains a public FAQ page for the programme. English quotations are translated by Projects Advisors; the Arabic original governs.