Are Financial Statements from a CPA Always Required for Bonding?

Whether you’re looking into bonding for the first time or have reached a point where CPA statements are part of the bond requirements, you may find yourself wondering if financial statements from a CPA are always required for bonding a contractor. To answer that question and ensure you understand why someone would require a financial statement prepared by a CPA, there are a few factors to discuss.

Are CPA Prepared Financial Statements Better?

To understand why a financial statement prepared by CPAs can be part of bond requirements, it’s good to start with why they are seen as better than an internal financial statement prepared by you. A CPA is educated and trained on how to prepare financial statements and knows how to ensure their accuracy, making them a better quality for the surety company. 

Besides the financial statement being a better quality reporting, having a CPA prepare your financial data also makes them more reliable. When a surety company is considering issuing a surety bond to a contractor, they will rely heavily on the financial information, as well as other factors, and having your financial statements verified by a third party makes them more trustworthy to the surety. 

In that way, CPA-prepared financial statements are better than providing your internal financials as it ensures they have been prepared properly for the surety company and verified by someone trained in accounting.

Should a CPA Have Construction Experience?

Construction accounting is very unique and not every accountant or CPA is the best option when a CPA-prepared financial statement is necessary. If an accountant or CPA is unfamiliar with construction accounting, they may not prepare your financial information correctly, and as a result, your bonding process could be delayed or  even worse denied. 

Looking for a specialized professional of any sort can give a contractor pause, as they don’t want to spend more money. The good news is hiring a CPA with a construction accounting background won’t cost you any more, and it will in fact, save you a lot of strife and expenses down the road getting it done right the first time.  

One added benefit of working with a CPA who is familiar with construction accounting is that the surety company will see your financial statements as more dependable, as they were prepared by an individual familiar with how the industry works.

Do Newer Construction Companies Need a CPA?

Contractors newer to being in business and bond requirements often worry if it’s too soon to work with a CPA or getting bonded. We at CSBA have written newer contractors and surety bonds in-depth here: What Sureties Look For When Bonding Newer Construction Companies – CSBA, and strongly encourage any contractor in business less than 5 years to read that article as well. 

When it comes to hiring a CPA to prepare contractor financial statements, it’s much easier to determine when it’s appropriate to hire one while working alongside a surety specialist. A surety agent is an expert in surety bonds for contractors and understands your bonding needs as well as how to achieve the goals you have for your company. Whether you hire a CPA or not as a young contractor business, it has less to do with the time your company has existed and more to do with your bonding needs

A surety specialist can help guide you through the cost/benefit decision and see if it’s right for your business to spend the money on hiring a CPA with a construction accounting background.

How to Prepare for Meeting a CPA

If having a CPA statement is necessary or a good idea per the surety specialist you’re working with, then it’s important to be prepared for that meeting. Like handing over your financial information to an accountant, you can’t plop a bunch of information on a CPA‘s desk. You’ll need to have your financial information organized, if for no other reason than it keeps the time the CPA spends on your financials down, and therefore the cost of their service lower. 

While having a CPA prepare your financial statements for a surety company is great, don’t neglect having quality internal financials as well. Not only does this make it easier on the CPA, but having good internal financial statements, can increase the size surety bonds you qualify for. To look further into how having quality internal financials can help you get bonded, we encourage you to read this: How Investing in Quality Internal Financials can Increase Bonding Capacity – CSBA

Are CPA Prepared Financial Statements Always Necessary?

Now that you understand why financial statements from a CPA are a good idea and why they’re seen as of better quality, are they always necessary? The answer is no, having CPA prepared financial statements are not always required by a surety company. Generally, the sureties will begin to require CPA statements for surety bonds over $2 million. That figure isn’t firm and there are exceptions, such as a contractor having significantly strong financials or not needing a bond often, that figure is a good rule of thumb when considering hiring a CPA.

Having a CPA prepare your financial statements is one of the main things you can do to increase your bonding capacity, which is integral to growing your company and the jobs you can bid on. As surety experts, we at CSBA are dedicated to just that. We invest in helping contractors grow their business, develop their financial literacy, and help them gain the surety bonds they need for the projects they want to win. 

Due to our professional expertise and dedication to surety bonds, we at CSBA have relationships with CPAs that have construction accounting backgrounds and give that access to contractors in need of CPA-prepared financial statements. Just one of the ways we serve those who build California.

Dan Huckabay
About The Author

Dan Huckabay

President

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