Commissioning records as evidence for capitalisation

Three professions leave a construction project at roughly the same time, each holding a different clock.

The contract's clock is the taking over certificate: possession passes, the defects notification period starts, retention begins to release. The operator's clock is readiness, which no certificate covers. And finance holds the quietest clock of the three: the date the project stops being expenditure and becomes an asset, when the work in progress balance transfers to the register and depreciation starts running.

We have written about each clock separately. This piece is about a document that connects two of them, and about the strange fact that on most projects it never makes the journey.

The question finance has to answer

Under IPSAS 45, cost stops accumulating in work in progress when the item is in the location and condition necessary for it to be capable of operating in the manner intended by management, and depreciation begins when the asset is available for use, defined in the same words. The test is capability, not paperwork, and nothing in the standard mentions a certificate.

Why the certificate gets used anyway, and what each error direction costs

The reason the certificate wins in practice is evidential. Asked when the asset became capable of operating as intended, a project team reaches for the document with a date and a signature, and the taking over certificate is the one to hand. But the taking over certificate attests to a contractual event between employer and contractor. It was never designed to say anything about the manner intended by management, and it does not.

The document that answers it

There is a document designed to say exactly that.

Commissioning, in the process sense the standards define, begins by writing down the owner's project requirements in testable values, and ends by verifying the installed systems against them. The LEED prerequisite requires the commissioning authority to verify system test execution, keep an issues log through the whole process, prepare a final commissioning report, and report findings directly to the owner. The final report is a dated, evidenced statement of which systems perform as the owner required, which do not, and what remains outstanding.

Read that against the accounting test. Capable of operating: the functional and integrated tests, passed and dated. In the manner intended by management: the owner's project requirements, which are management's intent written down in advance, in measurable form. A commissioning file is the capability test the accounting standard describes, performed by an independent party, on the actual asset, system by system.

The judgment needs	The commissioning file contains
In the location and condition necessary (IPSAS 45, para 17)	Installation checks and pre-start inspections, signed per system
Capable of operating	Functional and integrated systems tests, passed and dated
In the manner intended by management	The owner’s project requirements, verified in the final report
A date that can be defended	Test completion and energisation dates, recorded per system
Parts with different useful lives, for componentisation	The file is organised system by system, because it tests that way
Warranty start dates for the register	Energisation records, where warranties start at energisation

Every row in the second column exists on any project commissioned to the process standards. What does not exist, on most projects, is a distribution list that includes the financial controller.

FIG. 01What the accounting judgment needs, against what the commissioning file already contains. Every row in the first column is evidenced by the row beside it, on any project commissioned to the process standards. The file exists; the handover of it to finance is the step nobody owns.

Two more clocks in the same file

The fit goes further than the transfer date.

Warranties are supposed to be managed from handover, and the practical difficulty is that they do not start at handover. The Saudi national asset management manual notes that warranties often begin when an individual piece of equipment is first energised, so a single building carries many warranty expiry dates, and advises owners to press for warranty start at final handover precisely because the staggered version is so hard to administer. Where the staggered version survives, the energisation dates that started each warranty exist in exactly one place: the commissioning records, which log when each system was energised and tested.

And componentisation, the split of the asset into parts with different useful lives, has to happen at the moment of transfer with whatever breakdown is available. The commissioning file is organised system by system because it tests system by system, which is closer to a componentisation than anything else the project produces unprompted.

What survives of the project's own breakdown after capitalisation

Why the file never arrives

Nobody withholds it. The file fails to arrive because each profession scopes its own deliverables and no scope spans the seam.

The commissioning authority's engagement, even under the most demanding standard, runs to the final report and a review some 10 months into occupancy. Its addressee is the owner's project side, not the controller. The finance team joins at period end, asks for a date, and receives a certificate, unaware that a richer instrument exists. The operations team, who do hold the file, were in the commissioning tests for their own reason, to learn the equipment, and have no reason to know finance needs anything at all.

This is the case, made concrete, for the two involvements that get argued for in the abstract. Operations presence through construction and testing is usually justified as familiarisation. Finance presence at handover is usually justified as control. The sharper version of both: the evidence each function needs later is being generated in rooms they are not in, on dates that never repeat.

What commissioning tests, what it costs, and what the data says it buys

What to ask

Ask who receives the final commissioning report, by name. If the distribution list has no one from finance on it, the evidence and the judgment are not connected on your project.
Ask what evidence supported the last work in progress transfer. If the answer is the taking over certificate alone, ask whether a commissioning report existed at the time. The gap between those two answers is the finding.
Ask whether warranty start dates in the register trace to energisation records. If warranties were logged from the handover date instead, some coverage is shorter than the register believes.
At the next project, put the commissioning report on the finance team's document list at design stage, when adding a recipient costs a line in a table. The same list should already have operations on it.

Sources. IPSAS 45, Property, Plant and Equipment, paragraph 17 on the cessation of cost recognition and AG27 on depreciation commencing when the asset is available for use. USGBC, LEED v4 BD+C, EA Prerequisite Fundamental Commissioning and Verification, for the commissioning authority's required deliverables, including the final commissioning report and the requirement to report directly to the owner. Crowe et al., Building Commissioning Costs and Savings Across Three Decades and 1,500 North American Buildings, LBNL, 2020, as the evidence base for what commissioning documents in practice. EXPRO, National Manual for Asset and Facilities Management, the role of asset and facilities management during construction project phases, EOM-ZP0-PR-000004, Section 6.9.10, for warranty commencement at equipment energisation and the advice to align warranty start with final handover. FIDIC, Conditions of Contract, 2017 edition, Sub-Clause 10.1, for what the taking over certificate does and does not attest.

The evidence finance needs is in a file finance never sees