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
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.
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
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.