Preface: “There are men who can write poetry, and there are men who can read balance sheets. The men who can read balance sheets cannot write.” – Henry R. Luce
Why CPA-Prepared Financial Statements Matter for Bonding Purposes
For many construction companies, contractors, and service providers working on government or large private projects, obtaining a bond is a critical part of doing business. Whether it’s a bid bond, performance bond, or payment bond, these guarantees reassure project owners that your company has the financial stability and operational capability to complete the job.
One of the most important tools surety companies rely on to assess your business’s financial health is your CPA-prepared financial statements. But what exactly do these statements include, and why do they matter so much for bonding?
Let’s break down what business owners should know.
The Role of CPA-Prepared Financial Statements in Bonding
Surety underwriters rely on financial statements to evaluate your company’s ability to meet project obligations. A CPA-prepared statement offers a professional, independent view of your financial condition—something far more reliable than internally prepared bookkeeping reports.
When applying for a bond, underwriters want to understand:
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- How profitable and stable your business is.
- Whether you have adequate working capital to complete projects.
- If your debt levels are manageable.
- How efficiently your business manages cash flow and operations.
The higher the bond amount, the more detailed and formal the financial statements need to be.
Types of CPA-Prepared Financial Statements
There are three primary levels of CPA-prepared financial statements, each offering a different degree of assurance:
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- Compilation
A compilation is the most basic level. The CPA assembles financial data provided by management into a financial statement format but does not verify its accuracy.
Use Case: Suitable for small bond amounts or internal management use.
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- Review
A review provides limited assurance that the financial statements are free of material misstatements. The CPA performs analytical procedures and inquiries but does not conduct an audit.
Use Case: Often acceptable for moderate bonding needs—typically up to a few million dollars.
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- Audit
An audit provides the highest level of assurance. The CPA performs detailed testing, verification, and examination of records, internal controls, and supporting documentation.
Use Case: Required for larger bonding capacities or when the surety wants the highest level of confidence in your numbers.
Key Components of Financial Statements for Bonding
A well-prepared set of financial statements should include:
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- Balance Sheet – showing assets, liabilities, and equity. Sureties closely analyze working capital (current assets minus current liabilities) and net worth.
- Income Statement (Profit & Loss) – showing revenues, costs, and profitability trends.
- Statement of Cash Flows – detailing cash inflows and outflows from operations, financing, and investments.
- Notes to Financial Statements – explaining accounting policies, contingent liabilities, and other critical information.
- Work-in-Progress (WIP) Schedule – required for contractors, showing contract revenues, costs incurred, estimated profits, and billings. A well-prepared WIP schedule helps demonstrate how effectively your company manages ongoing jobs—a key metric for surety confidence.
Why CPA-Prepared Statements Matter More Than Bookkeeping Reports
Bookkeeping records can help you run your business day-to-day, but they often lack the accuracy, structure, and third-party verification that bonding companies demand.
CPA-prepared financials:
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- Add credibility – Sureties know the statements were prepared following professional standards.
- Reflect proper accounting methods – Especially important for contractors using percentage-of-completion or completed-contract methods.
- Highlight strengths and risks – A CPA can help you present financial information in the best possible light while disclosing risks properly.
In short, high-quality statements can directly affect your bonding capacity and the rates you pay for surety bonds.
How Business Owners Can Prepare
Here are a few practical steps to strengthen your financial position for bonding:
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- Keep accurate records year-round. Don’t wait until year-end to reconcile accounts or gather data.
- Work with your CPA throughout the year, not just at tax time. Ongoing advisory helps anticipate financial issues that could affect bonding.
- Manage debt wisely. Sureties look favorably on companies that maintain low leverage and consistent profitability.
- Build retained earnings. Keeping profits in the business increases equity and bonding capacity.
- Provide timely updates. Surety underwriters appreciate current financials and open communication about business changes.
The CPA’s Role Beyond Reporting
A knowledgeable CPA doesn’t just prepare statements—they can be a strategic advisor. By analyzing your ratios, margins, and WIP schedules, your CPA can help you:
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- Identify cash flow bottlenecks.
- Improve project profitability.
- Plan tax-efficiently while maintaining a strong balance sheet.
- Communicate effectively with surety underwriters and lenders.
Final Thoughts
For any business that bids on bonded work—especially in construction, manufacturing, or large service contracts—CPA-prepared financial statements are not just a formality; they are a foundation for trust and opportunity.
Investing in a well-prepared review or audit may seem like an added cost, but it’s a smart investment. It can unlock higher bonding limits, lower costs, and open doors to bigger projects—all while giving you a clearer picture of your company’s financial health.
If you’re preparing for an upcoming bonding cycle or want to strengthen your company’s financial presentation, our team can help you choose the right reporting level and position your business for success.