Surety Bond Quarterly - Fall 2014 - 36

to rein in capital expenditures, and fail
to recognize problems with estimation,
which would lead to correction,
including replacement of certain personnel.
Not taking corrective action
prevents the contractor from adjusting
to the current economic realities.
auditor to obtain sufficient evidentiary
matter to ensure the validity of
the figures presented in a company's
financial statements").
Cheapest Cost Avoider
The CPA is in a unique position to
uncover problems where the contractor's
books and records are not
being maintained according to GAAP.
The best time to address and correct
issues is early; as Benjamin Franklin
advised, an ounce of prevention is
worth a pound of cure. A contractor
notified early on of a problem
in its accounting and internal controls
can adjust through capitalizing
the company, changing personnel
who caused the problem, improving
project management, and adjusting
work scope if the job results are not
as believed or represented by the
financial statements. Unfortunately,
if problems are allowed to exist, persist,
and grow, then bad decisions are
made by both the contractor and others
relying on those financial statements,
including the surety. When a
contractor defaults on projects and
cannot perform, a lot of bad things
happen: the projects stop, people
lose their jobs, re-let packages have
to be prepared through a costly process,
a new contractor has to come
on, and liquidated damages mount.
Construction Cycles
The construction industry is cyclical.
Accordingly, at times there is
much work, profits are good, and
the contractor is flush with cash. At
other times the contractor has little
work while still heavily invested in
equipment, personnel, or otherwise;
36 surety BoNd Quarterly | FAll 2014
and profits, if any, are thin and cash
is leaner.
In order for the internal controls of
the contractor to properly account for
and display fairly the results of operations,
the accountant/auditor must
understand these intricacies and
cycles. The CPA must also understand
how a contractor might be tempted to
inappropriately and improperly display
financial transactions and results
due to the financial needs to remain
in covenant with a lender or to be
able to qualify for sufficient bonding
credit to bid projects of a particular
size. When the auditor does not
understand the issues and does not
maintain professional skepticism, but
instead unwisely relies upon representations
of management, the audit
process is compromised; and the CPA
falls out of compliance with GAAS. At
that point the parties relying upon the
audit may seek recourse by a lawsuit
for negligent misrepresentation or
other causes of action.
The failure of the auditor negatively
impacts parties relying upon
the audit. This certainly includes the
contractor. The auditor is not doing
a favor to the contractor by failing to
be open and honest and failing to ask
tough questions. When the auditor
does not do the job properly according
to GAAS and work to make sure
that the audited financial statements
of the contractor are fairly presented
and maintained according to GAAP,
everyone loses. The entire strategy of
the contractor is inappropriate if the
contractor does not recognize - is not
forced to recognize - the economic
reality of the situation. The contractor
may continue to bid on larger jobs, fail
The Contractor's and the
Subcontractor's Due Diligence
A contractor or a subcontractor needs
to research and perform due diligence
when selecting a CPA. Not all
CPAs are well versed in construction
accounting. Not all CPAs understand
the critical importance of transparency
and professional skepticism to
make sure that financial transactions
are properly and fairly represented.
If the auditor does not do her or
his job, then this failure needs to be
addressed. CPAs who have construction
industry knowledge and experience;
understand, apply, and maintain
professional skepticism; exercise due
professional care; understand and
apply proper construction accounting
and GAAP rules; and implement
the audit procedures according to
GAAS are the accounting professionals
with whom contractors and
subcontractors should seek to forge
long-term professional relationships.
It only makes good business sense for
a construction firm to select a CPA
immersed in auditing construction
companies. When seeking surety
credit, such a construction firm will
have the advantage of offering to the
surety an independent process and
an accurate, proper, and fair picture
of the firm's financial transactions.
In such circumstances, sureties will
have greater assurance that they can
rely upon the integrity of the independent
audit process and the work
product of the auditors.
●
Keith A. Langley, Esq., is a trial lawyer
at the Dallas, Texas office of the law
firm of Langley, LLP, www.l-llp.com.
His practice includes property insurance
on complex and catastrophic
claims; construction contracting and
disputes; and fidelity and surety matters
and more. He can be reached at
klangley@l-llp.com or 214-722-7162.
http://www.l-llp.com

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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