Surety Bond Quarterly - Fall 2014 - 23

positive cash flow, sound internal
controls, careful estimating and
effective project management.
In a period of shrinking balance
sheets and increased competition
at lower margins, the discipline and
counsel of an experienced construction
CPA is a vital component of the
contractor's team. The sureties recognize
this fact and factor it in their
underwriting decisions.
So what are some of the core characteristics
a surety or bond producer
should seek in the best-of-class CPAs?
SPECIALIST
No doubt the public generally holds
the CPA credential in high regard and
rightfully so. But the construction
industry is a high-risk, low-margin
proposition with complex transactions,
accounting processes that
depend on estimates, and accounting
standards that seem to be in constant
flux, such as a new revenue recognition
standard for Generally Accepted
Accounting Principles (GAAP). The
choice CPA firm should exude characteristics
described below that
leave no doubt in the surety's eyes
that the firm has a specialty in the
construction industry.
While not an absolute, you could
assume that a firm with a significant
number of contractor accounts
is demonstrating that it has a niche
in the construction industry. Some
boutique firms serve only the
construction industry.
CURRENT INDUSTRY
KNOWLEDGE
Best-of-class firms are leaders in
two industries-the construction
industry and the accounting industry.
you will see them involved in
construction associations and working
with multiple sureties and banks.
The best-of-class firms know all of
the sureties and the banks and most
of the contractors. Industry knowledge
is more than mastering some of
the buzz words of the industry: it is
understanding how a company gets
work, builds it and gets paid. CPAs
get industry knowledge by spending
years with contractors, on bid days,
walking a project, and at ball games
with the CEos or PMs. you call that
CPA because he or she is the thought
leader in the industry. Not only does
the CPA have the knowledge, but
also the integrity and trust to tell
you the straight truth-even if it is
not what you want to hear.
The most important attribute is
"current." There is a very significant
pool of accountants with construction
industry knowledge-but only
the best of class are driven to stay
"current" with the knowledge. This
requires attending conferences and
seminars, spending time with software
companies that support the
industry, and reading Engineering
News-Record and other relevant
publications on a regular basis to
understand the big picture and
industry trends.
RIGHT FIT
It is not uncommon for bond producers
to have a go-to CPA relationship
where confidence and familiarity
have been established. However,
care should be taken to ensure that
the unique needs of the contractor
and the capability of the CPA firm
are aligned. For example, some firms
do a great job performing reviews
of financial statements but lack the
capacity to perform quality audits.
The firm may have substantial clients
in a given sector, such as heavy highway,
specialty subcontractor, or general
building construction, but would
be challenged to understand the
unique risk profiles in another sector.
The contractor may have multi-state
operations that cannot be effectively
served by a single-office firm.
It is becoming more and more common
within CPA firms that all or substantially
all of their clients are taxed
as pass-through entities. less than 15
percent of contractors are C corporations
or file consolidated returns.
Producers and sureties should be
increasingly concerned if the tax
compliance could be at higher risk
due to the CPA's inexperience with
the form of business.
CPA Emilio F. Alvarez (standing)
directs (from left) Keungling lee
and Alicia Castillo during a review
of a construction client's
financial statements.
INDEPENDENCE
The foundation for audit and review
services is based on the concept of
independence of the CPA firm from
its clients. While it is common for a
contractor and its CPA to develop
both professional and personal relationships,
a bond producer and the
surety should be mindful of relationships
that become too tight. Does
the surety have the confidence that
the auditor will bring appropriate
levels of "professional skepticism"
in evaluating the transactions, estimates
and disclosures in the financial
statement engagement?
The personality of the construction
executive plays an important role in
matching a contractor with its CPA.
CURRENT ACCOUNTING AND
TAX KNOWLEDGE
Most CPAs are bright. But today's
fast paced, complex business world
has created an environment where
the CPA has to keep up-to-date with
changing rules on what is GAAP
for contractors as well as the everexpanding
and changing tax code.
Add to that the requirement to stay
abreast of audit standards, and you
have defined a situation where it is
unlikely that all of those skills can
be wrapped up in a single person.
likely the contractor will require
several people from the CPA firm,
each with the unique skills in some
but not all of the CPA disciplines to
be a partner with the contractor and
NatioNal assoCiatioN of surety BoNd ProduCers | WWW.NASBP.orG 23
http://WWW.NASBP.orG

Surety Bond Quarterly - Fall 2014

Table of Contents for the Digital Edition of Surety Bond Quarterly - Fall 2014

2014-2015 NASBP Executive Committee
NASBP Upcoming Meetings and Workshops
From the CEO: Successful construction relationships require the right relationship
Practical Insights: What you need to know - bond and lien notice pitfalls
SuretyLearn.org: An invaluable resource
Advocacy update
Nov. 12-3 Conference addresses the twists and turns of best value selection - and other timely topics
Surety Bond Guarantee Program changes for the better
Front Line Underwriting: Choosing a quality construction CPA
Getting in the weeds: Requirements of marijuana surety bonds
Encrypting email
It’s Finally Here: The new revenue recognition standard
CPAs standing in the GAAP
Resource Directory
Index to Advertisers
Surety Bond Quarterly - Fall 2014 - cover1
Surety Bond Quarterly - Fall 2014 - cover2
Surety Bond Quarterly - Fall 2014 - 3
Surety Bond Quarterly - Fall 2014 - 4
Surety Bond Quarterly - Fall 2014 - 5
Surety Bond Quarterly - Fall 2014 - 6
Surety Bond Quarterly - Fall 2014 - NASBP Upcoming Meetings and Workshops
Surety Bond Quarterly - Fall 2014 - From the CEO: Successful construction relationships require the right relationship
Surety Bond Quarterly - Fall 2014 - 9
Surety Bond Quarterly - Fall 2014 - Practical Insights: What you need to know - bond and lien notice pitfalls
Surety Bond Quarterly - Fall 2014 - 11
Surety Bond Quarterly - Fall 2014 - SuretyLearn.org: An invaluable resource
Surety Bond Quarterly - Fall 2014 - 13
Surety Bond Quarterly - Fall 2014 - Advocacy update
Surety Bond Quarterly - Fall 2014 - 15
Surety Bond Quarterly - Fall 2014 - Nov. 12-3 Conference addresses the twists and turns of best value selection - and other timely topics
Surety Bond Quarterly - Fall 2014 - 17
Surety Bond Quarterly - Fall 2014 - Surety Bond Guarantee Program changes for the better
Surety Bond Quarterly - Fall 2014 - 19
Surety Bond Quarterly - Fall 2014 - 20
Surety Bond Quarterly - Fall 2014 - 21
Surety Bond Quarterly - Fall 2014 - Front Line Underwriting: Choosing a quality construction CPA
Surety Bond Quarterly - Fall 2014 - 23
Surety Bond Quarterly - Fall 2014 - 24
Surety Bond Quarterly - Fall 2014 - 25
Surety Bond Quarterly - Fall 2014 - Getting in the weeds: Requirements of marijuana surety bonds
Surety Bond Quarterly - Fall 2014 - 27
Surety Bond Quarterly - Fall 2014 - Encrypting email
Surety Bond Quarterly - Fall 2014 - 29
Surety Bond Quarterly - Fall 2014 - 30
Surety Bond Quarterly - Fall 2014 - 31
Surety Bond Quarterly - Fall 2014 - It’s Finally Here: The new revenue recognition standard
Surety Bond Quarterly - Fall 2014 - 33
Surety Bond Quarterly - Fall 2014 - CPAs standing in the GAAP
Surety Bond Quarterly - Fall 2014 - 35
Surety Bond Quarterly - Fall 2014 - 36
Surety Bond Quarterly - Fall 2014 - 37
Surety Bond Quarterly - Fall 2014 - 38
Surety Bond Quarterly - Fall 2014 - Resource Directory
Surety Bond Quarterly - Fall 2014 - 40
Surety Bond Quarterly - Fall 2014 - 41
Surety Bond Quarterly - Fall 2014 - 42
Surety Bond Quarterly - Fall 2014 - 43
Surety Bond Quarterly - Fall 2014 - 44
Surety Bond Quarterly - Fall 2014 - 45
Surety Bond Quarterly - Fall 2014 - 46
Surety Bond Quarterly - Fall 2014 - 47
Surety Bond Quarterly - Fall 2014 - 48
Surety Bond Quarterly - Fall 2014 - 49
Surety Bond Quarterly - Fall 2014 - 50
Surety Bond Quarterly - Fall 2014 - 51
Surety Bond Quarterly - Fall 2014 - 52
Surety Bond Quarterly - Fall 2014 - 53
Surety Bond Quarterly - Fall 2014 - 54
Surety Bond Quarterly - Fall 2014 - 55
Surety Bond Quarterly - Fall 2014 - 56
Surety Bond Quarterly - Fall 2014 - 57
Surety Bond Quarterly - Fall 2014 - Index to Advertisers
Surety Bond Quarterly - Fall 2014 - cover3
Surety Bond Quarterly - Fall 2014 - cover4
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