An audit is the highest level of assurance a CPA firm gives on your financial statements: the auditor tests your records and gives an opinion that the statements are fairly stated. A review is a step down: the CPA asks questions and runs analysis but doesn’t test the underlying records, and gives limited assurance. A compilation gives no assurance at all. Your surety or bank usually decides which one you need, based on the size of your bonding program or loan.
This guide covers the three levels, what sureties and banks want, what a construction audit looks at, and how to prepare.
Compilation, review and audit at a glance
| Compilation | Review | Audit | |
|---|---|---|---|
| What the CPA does | Puts your numbers into financial statement form | Asks questions and runs analytical procedures | Tests transactions, confirms balances and looks at internal controls |
| Assurance | None | Limited | An opinion that the statements are fairly stated |
| Cost and time | Lowest | Moderate | Highest |
| Typical use for contractors | Small companies and smaller credit or bonding needs | Mid-size bonding programs and bank lines | Larger bonding programs and loans, or when a lender or owner requires it |
What sureties and banks want
- The right level for your program. The level of statement your surety asks for usually goes up as your bonding program grows.
- A CPA who knows construction. Statements on percentage of completion, with the contract schedules that show each job’s status.
- On time. Year-end statements within the number of days written into your bonding or loan agreement.
- Consistency. Numbers that match the monthly statements and WIP schedules they saw during the year.
What a construction audit or review looks at
- Your WIP schedule and the estimate to complete on each job
- Revenue on percentage of completion
- Underbillings and overbillings
- Retainage receivable and payable
- Contract receivables, which auditors may confirm with your customers
- Accrued costs and payables
- Equipment and debt
- Transactions with owners and related companies
A year-end adjustment that surprised the surety
We’ve seen this happen to contractors: the year-end WIP schedule shows a job well along with healthy profit, but the project manager’s updated estimate to complete is higher. The auditor finds it and cuts the profit on that job, and the adjustment shows up in the year-end statements after the surety has already seen the internal numbers. Reviewing estimates with your project managers before year-end avoids that surprise.
How to prepare, so it’s faster and cheaper
- Close the books every month, not just at year-end.
- Reconcile every bank, credit card and loan account.
- Update estimates to complete with your project managers.
- Tie the WIP schedule to the general ledger.
- Have the support ready: contracts, change orders, retainage, receivables and payables agings, fixed asset and debt schedules.
- Write down your processes and controls.
- Answer the auditor’s questions quickly.
Who does what
We don’t run audits or reviews, and we don’t sign opinions. Those come from your outside CPA firm, which has to stay independent. What we can do is most of the work around the audit. We typically handle about 80% to 90% of what the outside auditors would otherwise do, so they spend less time and can lower their fee. They keep the steps they must do themselves to stay independent, plus the final report and the signed opinion. Our part includes monthly closes, a WIP schedule that ties to the books, the schedules your CPA needs and quick answers to their questions. We work alongside your tax accountant and outside auditors, and we can sit in on your bank and surety meetings.
How we help
See our monthly financial reporting for contractors, read about the balance sheet your surety reads, or see all our construction accounting services.
FAQs
What’s the difference between audited and reviewed financial statements?
An audit tests your records and gives an opinion that the statements are fairly stated. A review relies on questions and analysis and gives limited assurance.
Does my surety need audited financial statements?
It depends on your bonding program. Larger programs usually need audited statements; smaller ones may accept a review or a compilation. Ask your surety agent what your program requires.
What is a compilation?
The CPA puts your numbers into financial statement form without testing or reviewing them, so it gives no assurance.
Is an audit worth the cost?
If your surety or bank requires it for the bonding or credit you need, yes. If not, a review may be enough.
Does CFO Strategies do audits?
No. Audits and reviews come from your outside CPA firm. We typically do about 80% to 90% of the work their auditors would otherwise do, so the audit takes less time. The auditors do the independence work, the final report and the signed opinion.
