Skip to the content


What Sureties and Bonding Agents Focus On In a Contractor's Financial Statements

By Gregg Lionetti

All construction contractors should have a strong CPA firm as a business partner.  Aside from year-end tax preparation, CPAs can assist with financial information required by sureties and bonding agents.  Here are some of the areas that sureties and bonding agents are focusing on for your financial statements and how Whittlesey can help:

Level of service:

Depending on the size of the bond, you may be required to submit CPA-reported financial statements.  Smaller bonds may require compiled or reviewed financial statements, and larger bonds may require reviewed or audited financial statements. Interim financial statements may also be required, depending on the terms of the bond. The interim financial statements are typically compiled or reviewed but may be required to be audited. Additionally, personal financial statements of the owners/individual guarantors may also be required. Whittlesey can provide all of these services to contractors.

Notes to the financial statements:

The notes are a required part of your financial statements for reviewed and audited financial statements and may or may not be required for compiled financial statements. The notes include valuable information for sureties, including the contractor's accounting policies over revenue recognition, contract assets and liabilities, the use of estimates, and unapproved change orders, among other accounting policies.  Required disclosures also include disclosure of any contingent liabilities and events subsequent to the balance sheet date that are important for the reader of the financial statements to know, which the surety will use to assess potential risk. Contractors can also make optional disclosures on items such as backlog, which can show a stronger position going into the following year. The financial statements, including the required footnotes, are the responsibility of management; however, Whittlesey can assist in the preparation of the financial statements to ensure all required disclosures are made.

Contracts-in-progress and completed contracts schedules:

Although they are not a required part of a contractor's basic financial statements, most sureties and bonding agents will want to see schedules of contracts in progress and completed contracts for the year. This allows sureties to look at each contract to determine profitability and compare estimates to prior periods on long-term contracts. Whittlesey can assist contractors in making sure these schedules are presented correctly and reviewing internal controls over long-term contracts, so these schedules and related accounting estimates made by management are as accurate as possible.

Working capital:

The typical formula for working capital is current assets minus current liabilities.  However, sureties may exclude or discount certain assets from the formula, including receivables aged over 90 days, inventories that haven't been turned over in the past year, officer loans, and related party receivables. Therefore, it is crucial to have strong internal controls over accounts receivables, collections, and inventory management.  Whittlesey can perform a review of your internal controls and make suggestions on how to improve operations over these areas, resulting in more favorable working capital.

If you have any questions or want to learn more about how Whittlesey can assist contractors, do not hesitate to contact your Whittlesey Advisor today.

Follow Us

For our thoughts on the industries we serve and firm updates, follow us on LinkedIn.

Ready to Connect?

We deliver personalized, expert services. Find out what we can do for you.