With April fast approaching and as Uncle Sam prepares to put on his collection shoes, it’s worth noting that taxes are due this year on April 18, 2017. Filing taxes early can save a lot of stress, time and money. However, your financial statement is another reason to be diligent in preparing your taxes in a timely manner.
As any contractor engaged in bonded work can attest, a CPA prepared financial statement can mean the difference between getting a bonded job and not getting it. Asking your CPA to prepare your financial statement while they prepare your taxes can help save time and money, and ensure that you are able to bond that job that is perfect for your business.
The CPA prepared financial statement is the primary tool a lender or creditor uses to evaluate a business and issue credit. As a creditor, it is important to understand the financial position of a company before issuing credit. With regards to surety bonds, the balance sheet typically determines the single and aggregate amount of bonding that may be available, in addition to the regular underwriting criteria.
The type of financial statement you should consider for your business should be determined by the amount of surety credit you anticipate needing. The basic types of financial statements to consider are outlined below and are listed in order of the least amount of assurance provided to a creditor or lender to the greatest amount of assurance.
BASIC FINANCIAL STATEMENT PREPERATION
This type of statement can be prepared internally, however, a CPA will help ensure that there are no obvious mistakes and that the format is appropriate. There is no formal report issued regarding the accuracy of the information.
Level of Assurance: In this case, the CPA is only arranging the information provided by the owner. Thus, there is really no assurance that the information is accurate. Providing supporting documentation such as bank and securities statements, accounts receivable and payable aging schedules, Work In Progress schedules (WIP) and other pertinent information can help support the accuracy of the statement.
Surety Credit: Basic statements can usually provide in excess of $500,000 in surety credit depending on other information provided.
A compilation includes a report from the CPA stating their role as independent from the ownership, thereby providing a basic level of assurance that the financial statement is at least correct in form and that there are no obvious mistakes or misstatements.
Level of Assurance: A compilation does not provide much more assurance than a basic preparation statement because it does not include a review of the basis of the information provided. Nevertheless, it does include a report which states the independence of the CPA which provides some additional assurance.
Surety Credit: A compilation can provide up to $1 million in surety credit depending on other underwriting information.
A review includes a report which states the independence of the CPA and that the CPA has performed a limited review of the information and comments on the accuracy of the information provided. Furthermore, a CPA must have knowledge of your industry and the accounting principles applied to it. They must also understand your business and your practices so that they may better identify errors and misstatements.
Level of Assurance:
Considered the base level of assurance, a review enables a lender or creditor to extend substantially more credit than a compilation.
Surety Credit: A reviewed statement is generally a requirement for bonds in excess of $1 million.
Considered the highest, reasonable level of assurance, an audit requires a CPA to physically inspect and verify stated amounts and inventory and to issue a formal report
Level of Assurance:
An audit provides the greatest level of assurance.
An audit would provide the greatest amount of surety credit.
Whatever your needs, a CPA prepared financial busy can be an investment in your business and provide a clearer financial picture of how your business is performing.