Your underwriter says you need a statement prepared by CPA. What now? Part 3

This article is part of a series sponsored by the guarantor of the Old Republic.

Construction accounting is complicated. It is necessary to understand the expected time and capital investment, as well as a clear understanding of the role of the CPA in preparing for compilation, review or audit statements. In Part 3 of this three-part blog, Kelly Kimmel, branch manager of the Old Republic Guarantee Company and Halli Williams, CCIFP, CCIFP, CBIZ CPAS, PC, explain the schedule and disclosure of Surety that Surety will seek and expect the fees and timings.

What timetables and disclosures will my guarantor look for?

The Guarantor is looking for a detailed and accurate statement that allows the underwriter to analyze data trends and answer questions about company or company industry normative trends. Detailed descriptions and disclosures help guarantors understand the reasoning behind the numbers and provide insight into abnormalities that allow underwriters to make decisions confidently. Typically, a complete statement will provide the guarantor with much of the information needed to analyze the company’s overall financial situation. Ideally, a complete statement includes:

• Cover Letter – A letter from the CPA, ineligible, confirms the statement’s compliance with GAAP.
• Balance sheet – Based on cost costs (formerly known as percentage completion), the basis is related to other information provided.
• Profit and Loss Statement – Costs are broken down directly in additional timetables in the statement or notes section (e.g., direct cost compensation, indirect cost, G&A cost or other cost or revenue).
• Statement of Changes in Equity Status – Detailed Description of the Contributions and Distributions of Ownership.
• Cash Flow Statement – For example, how cash is transferred to a company from the beginning of the year to the end of the year due to operations and investments.
• Comments and schedules include:
  • standard:
    • Summary of major accounting policies – This should confirm the nature of operations, the operating cycle, how income is recognized and how taxation is imposed.
    • Breakthrough and age of accounts receivable – This should violate the completed collection from completed projects with contracts. In addition, the breakdown of the age of receivables (currently, over 60 days, over 90 days).
    • Arrangement of Property and Equipment – A breakthrough in depreciation calculations of property and equipment.
    • The revenue segmentation is with Billings winning charges and extra fees. The network that has been charged compared to the earned earned.
    • Balance sheet, payment schedule and decomposition of long-term debts on the maturity date of these debts.
    • Bank Credit Information – Information on Covenant Compliance, Balance, Interest and Expiry Date.
    • Other Related Information – All other information, which is the information that constitutes the financial structure of the company and the balance sheet, income statement and cash flow statement.
    • Subsequent events – Accounts for major events from the fiscal year to the CPA’s statement finalized.
    • Contract Schedule for Working and Completed – A detailed timeline outlining the cost-to-cost calculations of the main projects (probably smaller projects integrated), and how each project contributes to the total revenue, direct costs and gross profits listed on the profit and loss statement, as well as additional notes and excess bonds outlined on the balance sheet.

I expect to pay?

The cost of preparing costs for CPA (% of completed completed) financial statements are labor-intensive and require completion by employees with expertise in the construction industry. In addition, expenses can be broadly scoped, depending on how much work is required to adjust the company-specific internal financial information to meet the GAAP.

For example, the following is the average start Costs per statement level:

• Compilation: $2,000+
• Comment: $15,000+
• Review: $30,000+

The cost of obtaining a statement prepared by a CPA can cause a sticker blow, however, the reviewed bond items are not based on discounted premium fees. Furthermore, the cost is largely the opportunity to be revenue not only exceeds the targets of a bond project, but also provides letters that demonstrate strong bond capabilities through strong financial statements with qualified previews from owners, architects and general contractors. The reality is that when your company sees a requirement to request financial statements prepared by the CPA, they may be looking for more than $1 million in job opportunities.

With the cost of reviewed statements ranging from $15,000 to $25,000, this could amount to less than 1% of the income of a job.

Additionally, when construction companies require a statement prepared for the CPA, their projects are usually larger in terms of contract price, and the time to complete the project. Save thousands of dollars by establishing internal processes that may find work profits fade out, third-party overviews that check internal controls and cost records and profits that may otherwise be invisible and allow contractors to take corrective action as early as possible.

When should we start participating in the CPA process?

If you have never had an external CPA, there is a great opportunity to require several adjustments to your internal controls and financial presentations so that your CPA release ensures that your statements follow GAAP principles. Best practices include early participation in the CPA, even before the financial cycle begins. (For example, if you want financial statements as of December 31, 2025, you should meet your CPA in the fourth quarter of 2024).

Early contact with your company’s CPA company allows them to gain initial understanding and provide feedback on your internal company system, which can save a lot of time and money at the end of the year. Meeting your accountant quarterly can be beneficial, allowing you to adjust your numbers throughout the year. This can help with annual reviews, but it can also help owners make better decisions using accurate data throughout the year.

How long does it take to obtain a statement prepared by CPA?

Similar to cost, the time range depends largely on how fast your CPA can coordinate with you to get the information you need and how accurate that information is. Guidelines for estimating time ranges are as follows:

• compilation:
• Review:
  • Field work: 1 week
  • Packaging/issuance: 4-6 weeks
  • Total: 5-7 weeks
• audit:
  • Plan and preliminary: 1 week before the end of the year
  • Field work: 1-2 weeks
  • Packaging/issuance: 4-6 weeks
  • Total: 6-9 weeks

Review items that pay for themselves at discounted premium rates and do not require many bonds. Furthermore, the cost is largely outweighs the revenue opportunities that can target bond projects and present financially with owners, architects and general contractors and contact with owners, architects and general contractors, and show strong bond capabilities.

Continue reading:
Part 13
Part 23

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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Underwriting