Construction companies often face significant challenges when it comes to financial reporting, especially when they need certain documents to secure bonding for projects. A recent blog post by Old Republic Surety highlights the importance of having a Certified Public Accountant (CPA) prepare financial statements that comply with Generally Accepted Accounting Principles (GAAP). This preparation is crucial for companies looking to present a solid financial picture to underwriters.
According to Kelly Kimmel, Branch Bond Manager at Old Republic Surety, and Halli Williams, a CPA and Senior Manager at CBIZ CPAs, the surety industry expects detailed financial statements that allow underwriters to assess a company’s financial health. These statements should include a cover letter from the CPA, a balance sheet, an income statement, a statement of changes in equity, and a cash flow statement. Additionally, comprehensive notes and schedules are necessary to clarify the numbers and provide context for any unusual trends.
The blog outlines several key components that should be included in these financial statements. For instance, companies must provide a summary of significant accounting policies, details on receivables, and a breakdown of revenue versus billings. Information about long-term debts and bank lines of credit is also essential. These elements help underwriters understand the financial dynamics of the business and make informed decisions.
Companies should also be prepared for the costs associated with CPA-prepared financial statements. The fees can vary widely based on the complexity of the work required. For example, a compilation can start at around $2,000, while a review may cost upwards of $15,000, and an audit can reach $30,000 or more. While these costs might seem high, the potential for savings in bonding premiums and the ability to pursue larger projects often outweighs the initial investment.
Timing is another critical aspect. The blog suggests that companies engage a CPA as early as possible, ideally before the financial year begins. This proactive approach allows CPAs to assess internal controls and provide guidance throughout the year, ultimately saving time and money during the auditing process.
In terms of how long it takes to prepare these financial statements, the timeline can vary. For a compilation, it typically takes between two to four weeks, while a review may take five to seven weeks, and an audit can require six to nine weeks. The duration largely depends on how quickly companies can provide accurate information to their CPA.
Overall, the insights shared in the blog emphasize the importance of thorough financial preparation for construction companies. By investing in CPA services and understanding the expectations of surety underwriters, these businesses can strengthen their financial standing and open doors to larger project opportunities.