This article is part of a series sponsored by the guarantor of the Old Republic.
Many commercial contractors experience the pressure caused by the guarantors requiring them to obtain financial statements prepared by a certified public accountant (CPA). Often, this is triggered by huge project opportunities. Faced with the possibility of losing a project, it turns into a crazy dash, which can lead the contractor to choose the fastest turnaround time and lead to the least troublesome accountant. However, construction accounting is unique, and an accountant unfamiliar with its complexity can make a statement without the required timetable, the balance sheet and profit statement are not properly bound to the timetable, or any other error presentation This is unusable for a guaranteed underwriter. At this point, the contractor spent valuable time, not to mention thousands of dollars, to declare a statement, but everyone was back to the first, or worse, the bond was turned down.
It is necessary to understand the expected time and capital investment, and the role of the CPA in preparing for a statement of compilation, review or audit, and it is necessary to ensure that the contractor obtains a strong financial presentation, not only the guarantor, but also to take advantage of its own internal control of its financial position. CCIFP, Halli Williams of CCIFP, Senior Manager of PC CPA and Senior Manager of PC and Kelly Kimmel, a contract bond manager at the Kansas City branch of the Old Republic guarantee company, worked together to answer frequently asked questions many companies encounter when participating in external CPAs. Prepare a financial statement to support its guarantee plan.
Why does my guarantor care about my financial statements?
Financial analysis is the basis for underwriting of contract-secured bonds. A powerful CPA prepares financial statements to do a few things:
- Help ensure the accuracy of the information provided,
- Standardized financial demonstration according to GAAP [Generally Accepted Accounting Principles]and
- Provides a timeline and breakdown of company financial information that shows important details about profitability and how money flows into the company.
When confirming that the company’s personality, ability and capital are consistent with the underwriting appetite, strong financial presentation is an important factor in the use of the guarantor. It can also assist the guarantor in expanding the contractor’s bond credit.
How to choose CPA?
Legally, any CPA can provide a reviewed statement, even if they have never prepared a cost-cost (formerly known as a percentage of completion) statement, as long as they intend to acquire knowledge under the compliance rules, they need to provide sufficient statements.
However, when you participate in the CPA with the CPA to get a fiscal year statement by GAAP, the accountant you have been using may not always be your best choice. Both GAAP standards and tax laws are complex and difficult to be an expert, let alone both. Generally, the best practice is to provide a separate expert for each service to ensure your financial statements and taxes meet the correct latest requirements.
Here are several ways to locate a construction-oriented CPA:
- Contact your on-site accountant or financial advisor. CPA companies usually have separate departments for each service. They may be able to collaborate on collecting financial information, reducing the amount of dual work required to complete annual GAAP financial statements and tax returns. Pay attention to communication to ensure that the recommended accountant has the qualifications and experience required for both services.
- Ask for advice from your guarantor or underwriter. Often these will be your end users, so they have a good idea of what they want to see, as well as examples of accounting firms that have provided acceptable statements to other clients in the past.
- Visit the CFMA website’s service provider directory. CFMA (Construction Financial Management Association) is an accounting organization for construction. CPA companies active in the CFMA community are often experienced in providing financial statements used by contractors to support their guarantee plans.
- Ask trusted peers in the industry. Other professionals used by CPA companies are investigated, and they are using CPA companies’ experience. Also ask for feedback they received from the guarantee company’s statement.
What questions should I ask about CPA?
Once you narrow down your search, make sure you choose the right partner by asking the right questions. Here are some examples of questions that can help you better qualify for your CPA:
- Overall construction accounting knowledge
- Do you often perform construction accounting services?
- Is it a statement prepared by a team of individuals or accounting professionals?
- Does anyone who is engaged in an account change every year?
- How does your company ensure you are up to date in accordance with the latest GAAP standards?
- What is the supervision process to ensure that GAAP standards are compliant when making a statement?
- Tailored expertise
- Can you provide a high-level description of the type of building and area where the client works?
- What is the size of the largest contractor you work with?
- What income ranges are most of your contractors?
- Do you meet my scope of work and company size?
- Do you have extensive experience in this area?
- Have you used my software system before?
- What experience do you have with these systems?
- Assets to your company
- Will you provide your clients with insight and expertise based on your observations?
- Can you benchmark or insight into how our company metrics compare with others in the industry?
- Do you provide best practice advice when observing our company’s internal controls?
- What challenges did you find similar companies going through when participating in CPA?
- What helped them overcome these challenges?
Continue reading:
Part 23
Part 33
Written with Halli Williams, CPA, CCIFP, Senior Manager of CBIZ CPA, PC
The blog was originally published on the Old Republic Guarantee website. It is allowed to copy here.
resource
https://www.ispartnersllc.com/blog/five-types-testing-methods-used-audits/
https://us.aicpa.org/content/dam/aicpa/research/standards/compilationreview/downloadabledablecuments/ar–00090.pdf
https://www.procore.com/library/construction-financial-audit
https://us.aicpa.org/content/dam/aicpa/research/standards/auditattest/downloadabledabledocuments/au-00326.pdf
https://us.aicpa.org/content/dam/aicpa/research/standards/auditattest/downloadabledabledocuments/AU-C–00300.pdf
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