Archive for the ‘Financial Statements’ Category

A Construction Surety Bond Program – Are you ready and can you prove it?

May 30, 2013

By Jon Fosburg – Reed Surety

Contractors face widespread bonding requirements today. Contractors performing work for federal, state, county or municipal entities will be required to post a bond. With tighter budgets governing projects everywhere, owners want stronger protection against contractor default.

Some construction companies face the challenge of establishing a surety line from scratch, while others seek to maintain or increase their limits. Regardless, every contractor should be aware of the critical factors that affect whether or not you get bond credit.

CPA prepared financial statements – To secure or increase your bond capacity rests primarily on the results posted in your company’s financial statements and these statements must be prepared on an accrual, percentage of completion basis. Surety companies take a hard look at a contractor’s net worth and working capital. They generally discount assets that are not easily converted to cash such as aged receivables older than 90 days and inventory. Sureties also look at how assets are allocated. A contractor may show a strong bottom line, but if its working capital consists almost entirely of equipment and fixed assets, can it really fund a job? If such a company’s cash and credit line were to dry up, it couldn’t simply sell equipment to pay wages and other job costs, because then it couldn’t do the job at all. That’s why a surety company likes to see contractors with strong working capital (defined as current assets minus current liabilities). Current assets include cash, receivables under 90 days and some inventory, assets that can likely be turned into cash within a year as opposed to property, plant, equipment and other long-term resources. Working capital gauges a firm’s ability to finance its operations and indicates the level of protection creditors and surety companies can expect when they underwrite the firm’s operations.

Company information – What’s the largest job your company has completed, has there ever been a claim, what accounting system do you use, resumes of your team, who’s your CPA? These are just several questions that are covered on a contractor’s questionnaire. The more complete your information is to the surety underwriter, the fewer roadblocks you’ll encounter in securing bond credit.

Banking  – Sureties will look for good banking relationships and balances. A bank line of credit is always helpful and it is becoming more of a requirement for larger programs. Have a bank reference letter ready to submit in the underwriting package.

Work in Progress (WIP) – The importance of a WIP report cannot be overemphasized. Typically a WIP is included in the year-end financial statement, however consistent reporting of a WIP to the surety will produce benefits. The WIP report is perhaps the most important report a contractor has to manage the profitability of the jobs it has in the backlog. In securing and maintaining your bond program, sureties will closely examine your WIP report.

For more information or assistance with your surety bonding needs, please contact Jon Fosburg of Reed Surety.

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Economic Forecast – 2013

January 29, 2013

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This morning, several members of Nienow & Tierney, LLP had the opportunity to attend the 14th Annual Economic Forecast Breakfast sponsored by the OC Chapter of California Society of CPA’s.  The speaker for the morning was Dr. Esmael Adibi from the Anderson Center for Economic Research at Chapman University.

Dr. Adibi presented a forecast of cautious and slow growth for 2013.  He expects the GDP for the United States to increase by 2.1% in 2013.  This was following a 2.4% increase in 2012.

Dr Adibi also indicated that he expects consumer spending to increase by 1.8% in the United States for 2013.

In California, Dr. Adibi projects about 225,000 new jobs being produced and with 25,000 of those occurring in Orange County.   He also estimated that housing prices will increase by 6.8% in California.

It was a pleasure to hear Dr. Adibi’s forecast and we hope for an above average increase to our clients in 2013.

Build-to-Suit Construction Adds Complexity to Lease Accounting

June 4, 2012

Companies that undertake construction projects in conjunction with leases should be careful of the accounting effects, PricewaterhouseCoopers’ Chad Soares says. Certain projects must be included as an asset on a lease-holder’s balance sheet, depending on how involved it is with the project. "If a lease involves an asset that will be constructed, special rules exist," Soares says.

During a recent webcast covering a variety of accounting issues, PwC Partner Chad Soares reminded companies that there are unpleasant balance sheet implications to beware when entering into build-to-suit lease agreements.

Further details are available on this article posted on Compliance Week.

Changes Proposed for Financial Reporting for Consolidations

November 7, 2011

orgchartIn a proposed Accounting Standards Update released Friday, the Financial Accounting Standards Board outlined changes it says would increase transparency and consistency of financial reporting about consolidations. The proposed amendments would affect any company required to evaluate whether it should consolidate another entity.

The Journal of Accountancy has prepared an article here providing further information.

New Standard for Review’s and Compilations, SSARS No. 19, is Effective for Statements after December 15, 2010

April 29, 2010

Via Journal of Accountancy

The AICPA’s Accounting and Review Services Committee issued Statement on Standards for Accounting and Review Services no. 19 in December, and it is effective for compilations and reviews of financial statements for periods ending on or after December 15, 2010.  The standard brings significant changes to compilation and review services, including the disclosure of reasons for lack of independence in a compilation report, and the separation of compilation and review guidance.

The AICPA’s Journal of Accountancy has prepared a great article explaining the new standard, including illustrations of the differences between the new and old standards here.

SEC Vote Reveals Likely IFRS Implementation Date

February 25, 2010

Via The Journal of Accountancy

The Securities and Exchange Commission voted unanimously on Wednesday on a new timeline for implementation of International Financial Reporting Standards for all US Public Companies.  The action calls for more study on the change from US Generally Accepted Accounting Principals, but envisions 2015 as the earliest date for implementation.

 

Following is a video of SEC Chairman Mary Schapiro’s statement regarding the vote:

Could You Detect Financial Statement Fraud? Take This Quiz and Find Out.

January 8, 2010

Via the Journal of Accountancy

Although we hate to think about it, fraud is something that should at least be in the back of our minds as a possibility all the time.  Recent high profile cases have shown that we should consider at least the possibility.  Although aimed at CPA’s, this quiz published by The Journal of Accountancy is a useful tool for anyone to assess their ability to spot fraud in financial statements.

Exposure Draft Issued Proposing Revisions to Compilation and Review Standards

May 8, 2009

Via the AICPA

Based on recommendations form the Private Company Practice Section Reliability Task Force, the exposure draft includes three proposed standards:

– Framework and Objectives for Performing and Reporting on Compilation and Review Engagements

– Compilation of Financial Statements

– Review of Financial Statements

The full text of the exposure draft can be found here.

The PCPS task force recommended revising the standards to allow an accountant to issue a review report in situations where the accountant’s independence is impaired in connection with the performance of a nonattest service relating to the design or operation of an aspect of internal control over financial reporting.

According to the Journal of Accountancy article, significant changes to the standards would include:

  • – The introduction the new terms such as moderate assurance, review evidence and review risk to the review literature to harmonize with international review standards.

  • – A discussion of materiality in the context of a review engagement.

  • – A requirement that an accountant establish an understanding with management regarding the services to be performed through a written communication, that is, an engagement letter.

  • – The establishment of enhanced documentation requirements for compilation and review engagements.

  • – Guidance for practitioners who are engaged to perform a compilation or review engagement when they have also been engaged to perform nonattest services.  The guidance includes reporting requirements for instances in which the accountant’s independence is impaired due to the performance of these services.

  • – The ability for an accountant to include a general description in the accountant’s compilation report regarding the reason(s) for an independence impairment.

Barry Melancon, president of the AICPA, has issued a brief explanatory video here.

The comment deadline is July 31 and the proposed effective date fo the changes is for financial statements for periods on or after December 15, 2010.