This post is part of a series of sponsored by Old Republic Surety.
Construction accounts are complex. Getting guidance on the expected time and capital investments as well as a clear understanding of a CPA’s role in the preparation of prepared, reviewed or revised statements is imperative. In Part 3 of this three -part blog, Kelly Kimmel, branch bond manager for Old Republic Surety Company and Halli Williams, CPA, CIFP, Senior Manager for CBIZ CPAs, PC, explains the schedules and reveals, the bail will be looking for as good as expected fees and timing.
What schedules and revelations will my security be looking for?
The guarantee is looking for a detailed and accurate statement that allows the insurance company to analyze data trends and answer questions about trends that are beyond the norm of your business or for the company’s industry. Detailed notes and revelations help the bail understand the rationale behind the figures and can provide insight into anomalies that allow insurance companies to make decisions. Generally, a complete statement will give the guarantee much of the information they need to analyze the company’s overall financial health. Ideally, a complete statement includes:
- Book of Cover – A letter from CPA without qualifications confirming the statement’s compliance with GAAP.
- Balance-executed to cost costs (previously called percentage of completed) basis that binds in with other information provided.
- Income statement costs divided directly into the inventory or in a further schedule within the notes (for example, direct costs, allocated indirect costs, G&A costs or other costs or income).
- Declaration of changes in equity position – detailed account of contributions and distribution of ownership.
- Cash flow statement – Details of how Cash moved through the company from the beginning of the year to the end of the year due to operations and investments, for example.
- Remarks and schedules to be included:
- Standard:
- Summary of significant accounting policies – this must confirm the nature of operations, operating cycles, how revenue is recognized and how the company is taxed.
- Breakout and age of receivables – this must break out how much of receivables come from completed projects vs. Contracts. In addition, a breakout of the receivables (current, over 60 days, is over 90 days).
- Plan property and equipment – an outbreak of the depreciation for property and equipment.
- Division of revenue earned VS Billings, as Nets over -ticket and sub -backing. The net of what is invoiced in comparison to what is earned.
- Outbreaks of the long -term debt on the balance sheet and the payment plan and the maturity dates for these debt.
- Bank line with credit information – information about Covenant compliance, balance, interest and expiry date of credit line of credit.
- Various relevant information-all other information that is material for the company’s financial composition, and the information that constitutes the balance, the income statement and the cash flow statement.
- Subsequent events-a account of material events that emerged from the end of the year until the CPA declarations are completed.
- Labor-in Progress and completed contract plans detailed schedules that outline the cost of costs Calculation of larger projects (possibly consolidation of smaller projects) and how each contributed to the total income, direct costs and gross profits listed on the income statement, as well as sub-ticket and overcills as published in the balance.
- Standard:
What should I expect to pay?
CPA-prepared costs for costs (earlier percentage of implementation) Accounting are labor intensive and require that employees with expertise in the construction industry be implemented. In addition, fees may vary greatly, depending on how much work is required to adjust your company’s specific internal financial information to accommodate GAAP.
For example, the following are average beginning Cost at each level of statement:
- Collection: $ 2,000+
- Review: $ 15,000+
- Revision: $ 30,000+
The cost of getting a CPA-prepared statement can cause sticker-shock, but it doesn’t take many bound projects for the review to pay for yourself in reduced premium rates. In addition, the costs are largely offset by the income options that come with not only being able to target bound projects, but by being able to approach owners, architects and the main contractor’s pre-qualifications with a strong financial presentation and a letter showing a strong binding capacity. The reality is when your business sees requests for a CPA-prepared accounting, they are likely to look at job opportunities that exceed $ 1 million.
With a reviewed statement that costs between $ 15,000 and $ 25,000, this can be equivalent to less than 1% of revenue on a job.
When a construction company needs a CPA-prepared statement, their projects are often greater both in terms of contract price as well as a long time to complete the project. Having a third -party overview of internal controls and examination of cost registers and profits can save thousands by establishing internal processes that may reveal job services, which may otherwise have been impossible to see, and to allow contractors to make corrective adjustments early.
When should we start the process of engaging a CPA?
If you have never had an external CPA, there is a strong chance that you will need to make more adjustments to your internal controls and financial presentations to your CPA to issue insurance that your statement will follow GAAP principles. Best practice includes engaging a CPA as early as possible, even before the start of the economic cycle. (For example, if you want a December 31, 2025, accounting, meet with your CPA in the fourth quarter of 2024).
Early contact with your company’s CPA company allows them to gain an initial understanding and provide feedback on your internal business systems, which can save a significant amount of time and money at the end of the year. It may even be advantageous to meet with your accountant quarterly so you can adjust your numbers throughout the year. This can help with the annual review, but also help owners make better decisions during the year with accurate data.
How long does it take to get a CPA-prepared statement?
Like the cost, the time frame is largely dependent on how quickly your CPA can coordinate with you to get the necessary information and how accurate this information is. A guide to estimated time frames is as follows:
- Collection:
- Examination:
- Fieldwork: 1 week
- Wrapping/Issuing: 4-6 weeks
- Total: 5-7 weeks
- Revise:
- Planning and preliminary: 1 week 3 months before the end of the year
- Fieldwork: 1-2 weeks
- Wrapping/Issuing: 4-6 weeks
- Total: 6-9 weeks
It does not require many bound projects for the review to pay for yourself in reduced premium rates. In addition, the costs are largely offset by the income options that come with being able to target bound projects and to approach owners, architects and main contractors with a strong financial presentation and a letter showing a strong bonding capacity.
Continue reading:
Part 1 of 3
Part 2 of 3
Co-written with Halli Williams, CPA, CIFP, Senior Manager for CBIZ CPAS, PC
This blog was originally published on the Old Republic Surety site. It is reproduced here with permission.
Resources
https://www.ispartnersllc.com/blog/five-types-testing-mehods-cesed-uchits/
https://us.aicpa.org/content/dam/aicpa/research/standards/compilationreview/downloadabledocuments/ar-00090.pdf
https://www.procore.com/library/construction-financial-audit
https://us.aicpa.org/content/dam/aicpa/research/standards/Auditattest/downloadabedocuments/AU-00326.pdf
https://us.aicpa.org/content/dam/aicpa/research/standards/Auditattest/downloadabedocuments/AU-00300.pdf
Topics
Insurance
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