Through our audits of major capital projects, the Queensland Audit Office (QAO) has developed insights to assist our auditors and clients in determining when to start capitalising project costs. This blog shares these insights as a guide and outlines how we will engage with our clients.  

The way an entity accounts for the construction of assets can change based on the phase of the development project itself. Expenditure early on in a project is expensed through the profit and loss statement, and expenditure incurred later is capitalised on the balance sheet. On major projects, it is a matter of professional judgement when the phases change and requires early discussion between us and our clients.  

The significant increase in state and local government infrastructure projects, ahead of the Brisbane 2032 Olympic and Paralympic Games, means it is crucial that QAO and our clients have a consistent approach to how these judgements and decisions are made. The infrastructure build for the Games will be complex and entities will have difficult judgements to make that do not always have a precedent.  

Our recent report to parliament, Major projects 2025 (Report 8: 2025–26) highlights that the state currently has several infrastructure projects underway with budgets exceeding $500 million. Insights from our previous audits and our reports to parliament can be helpful for our clients and auditors in applying relevant criteria in a consistent manner across major capital projects. Two key questions that should be asked are: 

• what stage is a major project currently at? 
• has the project progressed far enough for costs to be capitalised rather than expensed? 

How can our insights assist? 

Major capital projects often span years, move through multiple stages, and require internal and external approvals to progress. This makes it difficult for entities and auditors to determine if a project will proceed through to completion, and if it will deliver future economic benefits. 

Accounting standards provide limited guidance on the precise capitalisation point. Project costs can generally be capitalised when: 

1. the project receives required approval (for example, financial, regulatory and technical)  
2. there is strong evidence the project will go ahead 
3. it is likely the project will provide future economic benefits.  

Failure to obtain the required approvals may result in a project not continuing or requiring significant modification to its scope or location. 

Our insights provide our clients and auditors with a structured approach for assessing project stages and approval pathways, and understanding what approvals remain outstanding. This supports consistent, well-documented, and evidence-based capitalisation decisions.   

Our insights align with Queensland Treasury’s Project Assessment Framework (PAF), which guides the planning, evaluation, and delivery of major infrastructure projects. 

Assessing whether project costs can be capitalised or should be expensed 

Based on our experience, major projects can be classified into 4 stages. Each stage may need an assessment of the approvals that are required before the project can progress. The 4 project stages are: 

1. Concept planning and early design 
Project costs are usually expensed 
Early scoping and feasibility activities typically do not meet the capitalisation threshold because there is insufficient evidence to determine if the project will proceed and if it will result in future economic benefits. 

2. Exploratory works 
Project costs are assessed on a case-by-case basis 
Entities might be able to capitalise some costs at this stage, depending on the nature of the approvals required and the status of those approvals. Some key external approvals, such as environmental clearances, may prevent the project from proceeding or significantly alter its scope. If those approvals are outstanding, it may not be appropriate to capitalise project costs. 

3. Design of main works  
Project costs are usually capitalised 
Once key external approvals are obtained and the project is clearly progressing toward construction, capitalisation is generally appropriate because it can be sufficiently demonstrated the project will be delivered.  

4. Construction of main works 
Capitalise project costs 
When all approvals are in place, the project has funding available, and construction is underway, costs are capitalised while the asset is being created. 

Smaller projects may not pass through all stages and may involve less judgement. Regardless of size, we assess each project on its specific facts and circumstances. Clear management position papers outlining project stage and approval status help document the rationale for expensing or capitalising costs. 

Types of approvals to be considered 

At each stage, entities and their auditors should focus on external approvals (those largely outside the entity’s control), as these typically provide the strongest evidence of project viability and commitment. These fall into 3 categories: 

Financial approvals 

• government funding or financial commitment to the project 
• approval to award contracts to suppliers to deliver the project. 

Regulatory approvals 

• environmental and planning approvals 
• assessments of any social or community impacts. 

Technical approvals 

• approval of business cases 
• resolution of major design issues 
• engineering sign-offs and mitigation of key technical risks. 

As Queensland’s major project pipeline continues to expand, having a structured and transparent approach to assessing capitalisation, and working with your auditors, is more important than ever. We encourage our clients to speak with your QAO engagement leader if you have any questions. 

Resources 

• Major projects 2025 (Report 8: 2025–26) 
• Project assessment framework - QLD Treasury