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Good Construction CPAs are "Money"

Good Construction CPAs are "Money"

This article was featured in Engineering News Record's 2015 Special Surety Section. 

A certified public accountant (CPA) firm that specializes in construction is critical to the success of the financial management of any contractor’s business. Construction companies experience strong economic cycles and work in complex business environments. It is imperative for a construction company to be surrounded by a solid team of advisors in order to sustain profitability, and that team includes a construction-oriented CPA. All long-term successful contractors share this positive characteristic.


Construction accounting is unique. There are different methods of reporting income for tax purposes that are available to contractors. Surety companies prefer to see a financial statement where revenues are recognized on a percentage- of- completion basis of accounting, and a good construction-oriented CPA firm will provide this. The CPA firm should understand the complex accounting and tax issues required of contractors. A CPA firm that does not focus on contractors may not fully recognize all of the tax implications to a construction company, or the strategies to mitigate taxes that are available to a contractor. Simply put, if the CPA is not construction-oriented, the result could be the contractor paying taxes the business does not owe.


A construction-oriented CPA is well-versed in the nuances of construction accounting. This will become increasingly more important considering the guidance by Financial Accounting Standards Board (FASB) regarding new revenue recognition standards. The objective of the new guidance is to establish the principles to report useful information to users of financial statements about the nature, timing, and uncertainty of revenue from contracts with customers. A CPA firm that understands these kinds of changes will bring value to the relationship and is crucial to obtaining the optimum level of surety credit.


A construction-oriented CPA firm will also be a valuable consultant when choosing a software program for contractors. A sophisticated contractor will use an accounting system that can produce timely and accurate financial information. It is of great benefit for the contractor to have an internal accounting system that closely mirrors the CPA's financial reports. A construction-oriented CPA firm will make recommendations for software programs that accomplish this goal. The CPA firm should also be available to help implement the system, recommend when upgrades to the system are beneficial, and easily provide temporary support for vacationing accounting staff.

The timing of the CPA’s financial reports is critical for surety support. A surety company expects to review the contractor’s fiscal year end report within 90 to 120 days after fiscal year end. A construction-oriented CPA firm will ensure the reports are promptly available to the surety, bank, and any other party that requires financial information to help support the contractor’s operations. If the CPA’s fiscal year end report takes more than 120 days to complete, the surety is required to make decisions regarding the contractor’s surety credit based on out of date information. This will limit the contractor’s surety bond capacity.    


Most construction companies, particularly subcontractors, require the use of a bank-line of credit to help cash flow their operations. Even general contractors, that do not normally require it, often have a bank-line of credit facility in place for the occasional short term need for cash. A construction-oriented CPA firm that prepares the fiscal year end financial statement could be beneficial to a contractor’s banking relationship. Just like a construction-oriented CPA firm provides comfort to the surety that the financial information is accurate and appropriately prepared, a banker should also receive the same level of comfort from the CPA’s financial information. Since borrowing ability is important to the business operations of most contractors, a construction-oriented CPA firm can only help when qualifying for bank credit.


The benefits from hiring a good construction-oriented CPA firm are numerous. Keys to a successful CPA/Contractor relationship are respect and trust, clear communication, mutual commitment, responsiveness, and availability. Finding a good construction-oriented CPA firm can come from referrals from surety bond agents and by surety companies. Various industry associations can also be good resources. Strategically, using a construction-oriented CPA firm should be a priority for a construction company that wants to minimize their taxes, values their banking relationship, and wants to increase their surety capacity.