Under budget
Check whether the job is complete, all time is recorded and the remaining work is understood before calling the result favorable.
Practice guide · Time and budgets
CPA firm job profitability: measuring WIP, under and over budget
A portfolio can look profitable simply because some jobs have no time recorded. A useful review begins with complete data and a consistent rate card, then asks what the variance actually means.
The short answer
For operational job monitoring, valued WIP is the sum of recorded job hours multiplied by the applicable position rates. Comparing that amount with the fee budget shows an under- or over-budget position. It does not establish realized profit or cash collected. Missing hours, missing rates and missing budgets need explicit treatment before client totals can be interpreted.
WIP, fee budget and billing are three different numbers
In this guide, WIP means the value assigned to work recorded on an engagement using the firm’s rate card. It is an operational measure for reading work against an agreed budget. The rate can be a position rate used by the practice; it should not silently alternate between a billing rate and an employment-cost rate from one job to another.
The fee budget represents the commercial amount or internal target recorded for the engagement. Billing records what has been invoiced. Cash collection records payment received. They describe different stages. AICPA & CIMA’s practice-management discussion of pricing highlights the value of reviewing effort and additional work together; it does not make a WIP variance equivalent to net income.
| Measure | What it describes | What it does not establish |
|---|---|---|
| Valued job WIP | Recorded hours × position rates | Actual costs, invoices or collections |
| Fee budget | Amount agreed or planned for the job | All work actually performed |
| Invoices and collections | Billing and money received | Completeness of time records |
Scroll the table if needed.
How to calculate job WIP in four steps
A comparison is meaningful when period, currency and valuation basis agree. If the engagement is still in preparation, call the result an interim position. Work remaining to be done can change it. A favorable variance while the return is waiting for major documents should not be presented as a finished job’s profit.
In the formula used here, a positive budget-minus-WIP variance is under budget; a negative result is over budget. State that sign convention visibly. Some firms display an overrun as a positive amount instead. The choice is less important than applying it consistently and avoiding contradictory green or red labels.
Gather job hours
Use the work recorded against the correct job and period. Check whether a zero is a real zero or missing input.
Apply the rate card
Identify the position rates, currency and version. A missing rate is an exception to resolve, not free work.
Sum the valued work
For each position, multiply hours by the applicable rate, then add the amounts to obtain job WIP.
Compare with the budget
Calculate budget minus WIP, then divide that variance by the budget for a percentage when the budget is nonzero.
A fictitious client with three jobs
The following rates and hours are fictional. They illustrate a tax job, an annual accounting job and a monthly accounting job for the same client. They are not published prices, cost benchmarks or a claim about a TAXFINAI customer’s results.
| Job | Recorded calculation | WIP | Budget | Position |
|---|---|---|---|---|
| A · corporate return | 20h × $150 + 6h × $200 + 2h × $240 | $4,680 | $6,000 | $1,320 under budget · 22% |
| B · annual accounts | 10h × $110 + 3h × $200 + 1h × $240 | $1,940 | $1,500 | $440 over budget · 29.3% |
| C · monthly accounts | No hours entered | Unknown | $4,800 | Not measurable |
| Client subtotal · A and B | Two measurable jobs of three | $6,620 | $7,500 | $880 under budget · 11.7% |
Scroll the table if needed.
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Why unknown WIP is not zero WIP
If job C were counted as zero, all three budgets would total $12,300 while known WIP remained $6,620. The resulting apparent favorable variance would be $5,680. That number is a data-completeness problem dressed as performance: it includes the full budget of an unmeasured job.
The honest client subtotal includes A and B, and states that two of three jobs have measurable hours. Job C stays on the exception list. The manager can then ask whether work has started, whether the time is entered elsewhere or whether the job should be excluded from the period. None of those questions is answered by a blank cell.
The same principle applies to a missing budget or rate. A zero fee budget makes a percentage meaningless; a blank position rate prevents reliable valuation. Keep these rows visible rather than silently suppress them from the client view. Completeness is part of the interpretation, not an administrative footnote.
Read the variance before acting on it
For a completed over-budget job, the conversation can distinguish an underestimated initial scope from extra services or unexpected preparation work. A larger WIP total may also reflect a changed rate card rather than more hours. Compare the underlying hours and roles before interpreting a year-to-year dollar change.
Fees, staff costs, overhead, write-downs and collections are needed for broader profitability analysis. This guide’s budget variance is useful for operational decisions, but it deliberately does not rename that variance “net margin”. The underlying accounting recognition of unbilled work is a separate professional assessment.
Over budget
Review extra work, missing client data, review iterations and the original estimate. The amount identifies a question; it does not prove who caused it.
No hours or no rate
Resolve the data exception before comparing the job with measured engagements.
No budget
Show valued work separately and obtain the commercial basis before producing a variance percentage.
Keep rates, hours and capacity in the same conversation
A rate card should have an owner, a clear valuation basis and an effective date. When rates change, agree whether historic jobs retain their original basis or are revalued for management comparison. Document the choice so a portfolio total can be reproduced later.
Hours also describe workload. A job may be under budget because an experienced reviewer handled it quickly, or because recorded hours are incomplete. A capacity view can help investigate that difference, provided available hours, leave and period assumptions are known. An unfilled capacity field is not proof of an overloaded employee.
Nonbillable activity needs a stated treatment in the firm’s management policy. Training or internal administration and client-specific rework answer different questions. Do not mix them into a job measure accidentally, and do not discard engagement work merely because it was not separately invoiced.
Run a repeatable portfolio review
Tax Workflow values recorded job hours at the relevant position rates and compares WIP with the job budget. The portfolio view brings that information together by client and season. Timesheets and the built-in timer support the team’s work recording, while the WIP interpretation stays anchored in recorded job hours and the selected rates.
A sample demonstration can use the three-job example to compare the visible variance with the completeness of the inputs. The useful question is not whether every row is green; it is whether the manager can explain a figure and identify the action that follows.
- Reconcile the jobs included with the current season or reporting period.
- Show how many jobs have hours, rates and budgets before reading the total.
- Review large variances with the preparer and manager using the same sign convention.
- Record decisions on remaining work, scope discussions or next-year budgeting.
- Use invoices and collections from the appropriate financial records for realized results.
Common questions
Is WIP calculated at cost or at a billing rate?
That depends on the declared management measure. This guide uses position rates for valued job work. A cost margin needs cost data and a separate calculation.
Can a job with no entered hours be counted as zero?
Only if zero work is actually established. Missing hours mean the WIP is unknown, and treating it as zero can create a false favorable variance.
How is the variance percentage calculated?
Using this guide’s convention, (budget − WIP) divided by budget. A missing or zero budget prevents a meaningful percentage.
Does a positive variance equal money earned?
No. Billing, collections, costs and accounting recognition are different facts. An operational budget variance is not realized net profit.
What changes when the rate card is updated?
The value assigned to the same hours may change. Keep the rate version and revaluation policy explicit so comparisons can be explained.
Sources for further reading
Dated source checks do not replace review by the professional responsible for your engagement.
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