Bottom line, tax returns are NEVER acceptable financial reports when applying for contract surety bonding. Except for very small bond requests a contract surety underwriter will require one more years of proper financial statements prepared by a certified public accountant (CPA). There are three levels of CPA service or “scopes of engagement”; a compilation, review or preparation to full audit standards. For performance bond requests under $400,000, a compilation or reviewed statement can be acceptable when accompanied by bank statements and/or other evidence of the veracity of the information provided in the statement. For all other requests a surety bond underwriter will invariably request an audited financial presentation, and preferably by the “percentage of completion” method. Percentage of completion reports is superior to other methods because this particular technique estimates profits on partially completed projects.
A GAAP compliant financial statement includes:
* Auditor’s Report
* Balance Sheet
* Income Statement
* Statement of Changes in Stockholder Equity
* Statement of Cash Flows
* Auditor’s/CPA’s Notes
All of these elements of a properly prepared financial statement are necessary for a performance bond underwriter in order to measure a contractor’s financial condition at any one point in time. Most of the bond underwriter’s analysis and the formulas used to determine bond approval limits are dependent on the organized presentation of the statement. Tax returns do not contain the detailed information needed to accomplish an underwriting review.
Retention of an accountant familiar with percentage of completion/capital-cost methods of statement preparation is invaluable to a contractor. Poor financial statement presentations or submission of tax returns to support a performance bond submission are a frequent cause of declinations of a contract surety bonding request.
National surety leader, Surety One, Inc. focuses on supporting the performance bonding needs of the commercial, highway, heavy industrial and construction contracting industries. We offer performance bonds to construction and commercial service contractor applicants small and large. Visit SuretyOne.com, call (787) 333-0222 or (800) 373-2804, or email Underwriting@SuretyOne.com for a performance bond application package or information about any surety bonding need. Recuérde que le asesoramos en SU idioma, así que comuníquese con nosotros, SU compañía afianzadora preferida para la fianza.
