Your Underwriter Says You Need a CPA-Prepared Statement. What Now? Part I

February 11, 2025 by

This post is part of a series sponsored by Old Republic Surety.

Many commercial contractors have experienced the stress caused by the surety requiring them to obtain a financial statement prepared by a certified public accountant (CPA). Often this is triggered by a large project opportunity. Faced with the possibility of losing a project, it becomes a mad dash, which may lead the contractor to choose an accountant with the quickest turnaround time and who causes the least amount of hassle. However, construction accounting is unique, and an accountant who is not familiar with its complexities could issue a statement without the needed schedules, with a balance sheet and income statement that don’t correctly tie into the schedules, or any number of other errors rendering it unusable for the surety underwriter. At this point the contractor has spent valuable time, not to mention thousands of dollars, for the statement, but everyone is back at square one, or worse, the bond is declined.

Understanding the expected time and capital investment, as well as the role of a CPA in preparing compiled, reviewed or audited statements, is imperative to ensure a contractor gets a strong financial presentation, not only for the surety, but also to utilize for their own internal controls. Halli Williams, CPA, CCIFP, Senior Manager for CBIZ CPAs, P.C., and Kelly Kimmel, Contract Bond Manager for the Kansas City branch at Old Republic Surety Company collaborated on answering the frequently asked questions that many companies have when looking to engage an external CPA for preparing a financial statement to support their surety program.

Financial analysis is at the base of contract surety bond underwriting. A strong CPA-prepared financial statement will do several things:

  • Help ensure the accuracy of the information provided,
  • Standardize financial presentations in accordance with GAAP [Generally Accepted Accounting Principles], and
  • Provide schedules and breakdowns of company financial information showing important details on how profitability and money flows through the company.

A strong financial presentation is a significant factor the surety uses when confirming that a company’s character, capacity and capital align with their underwriting appetite. It can also assist in the surety’s ability to stretch a contractor’s bonding credit.

Legally, any CPA can engage in providing a reviewed statement even if they have never prepared a cost-to-cost (previously referred to as percentage of completion) statement before, so long as, according to compliance rules, they intend on obtaining the knowledge needed to provide an adequate statement.

However, the accountant you have always used for your taxes may not always be your best option when engaging a CPA for a GAAP-complying financial year-end statement. Both GAAP standards and the tax codes are complex, and it is difficult to be an expert in one, let alone both. Generally, it is best practice to have separate experts for each service, to ensure both your financial statement and taxes are meeting the correct, most up-to-date requirements.

The following are a few methods for locating a construction-oriented CPA:

  • Contact your current accountant or financial adviser. CPA firms usually have separate departments for each service. They may be able to collaborate on gathering financial information, lessening the amount of double work that may be required in completing both a year-end GAAP financial statement and a tax return. Be mindful in your communication so you can ensure that the recommended accountant has the qualifications and experience required for both services.
  • Request recommendations from your surety agent or underwriter. Often these will be your end users of the statement and therefore they have a good idea of what they are wanting to see and examples of accounting firms that have provided other clients with acceptable statements in the past.
  • Visit the CFMA Website’s Service Provider Directory. CFMA (Construction Financial Management Association) is a construction-oriented accounting organization. The CPA firms that are active in the CFMA community are generally experienced in providing financial statements used by contractors to support their surety program.
  • Ask trusted peers in the industry. Poll other professionals within the industry on the CPA firms that they use and what their experience has been. Also ask about the feedback they have received from their surety companies on the statements.

Once you have narrowed down your search, make sure you choose the right partner by asking the right questions. The following are some examples of questions that may help you better qualify your CPA: