Reviews and Audits for Construction Companies

As your construction firm grows and expands into new lines of work, you may be required to obtain a review or audit to qualify for a specific project. A review or audit is a key step in your firm’s growth journey, enabling you to secure the required bonding to bid and work on large-scale public works projects.

For smaller projects, a review is usually sufficient to obtain the bonding capacity required. But for larger projects, it’s likely your construction company will need an audit. As an illustration, to work on a Florida Department of Transportation (FDOT) road or bridge project, you’ll need a review to bid on contracts under $2 million. An audit is required for any projects that exceed that amount.

Obtaining an audit or a review can be a significant undertaking, but it’s an investment worth making. A successful review or audit makes your company a candidate for larger, more lucrative projects, fueling your company’s growth.

In this overview, we explore reviews and audits for construction companies in Florida and the Southeast. We’ll explore why your company might need a review or an audit and then walk you through the process of obtaining these assurance services.

Why Might a Construction Company Need a Review or Audit?

We already touched on the key reasons your construction company might need a review or an audit: to pre-qualify to bid on certain types of projects or get a construction bond. Providing your bonding agent with reviewed or audited financial statements will likely help them obtain a more favorable premium from sureties, saving you money.

The majority of companies begin with a review, a less expensive assurance product with a narrower scope than an audit. For smaller projects, this may be sufficient. As your company grows and starts to target larger contracts, your bonding agent will let you know when a review is no longer adequate. At this point, you should obtain an audit. This is the highest possible level of assurance that your financial statements are free from any material misstatements.

Both reviews and audits have a simple benefit: they allow your company to work on larger, more profitable projects. But there are other benefits too, from assistance with cost recovery to improved confidence in the financial management of your business. Audits can also help improve your company’s internal controls, pinpointing potential weaknesses and providing recommendations that help protect you against fraud and key person risk.

The Review and Audit Process

The processes for reviews and audits are relatively similar. Both provide external parties with some assurances that your construction company’s financial statements are accurate.

Where the two differ is in their level of detail and rigor. An audit is the highest standard of assurance and features a comprehensive level of analysis. Reviews are a step down from an audit and do not assess internal controls or fraud risks. These limitations are why reviews are typically only appropriate up until a certain contract value.

Keep in mind that depending on a variety of factors, a review or audit can take three to six weeks to complete from signing the letter of engagement. If it’s your first review or audit, expect it to take a little longer since the assurance firm needs to get to know your business. Make sure to factor this additional time into your project. While it’s possible to pull together a review or audit in less time, it’ll likely cost you more to do so.

Regardless of whether your construction company needs a review or audit, the process will look something like that outlined below.

Pre-Engagement Activities

There are two key pre-engagement activities:

• Initial Consultation: The construction company meets with audit or review firms they’re considering hiring and shares their needs, objectives and specific concerns. A firm is then selected.
• Engagement Letter: Next, the selected auditor or reviewer drafts a formal letter outlining the scope of work, timeline, responsibilities and fees. By signing this letter, the construction company formalizes its relationship with the assurance firm.

Planning and Preparation

The key stages in this part of the project include:

• Document Gathering: Before the engagement fully begins, your auditor will issue you a request list for various construction financial statements and documents. These include balance sheets, income statements, cash flow statements and transaction records. You’ll gather these statements and submit them to your auditor (often electronically).
• Planning Meetings: The assurance firm will hold planning meetings to prepare for the audit or review, assessing all key documentation to identify potential issues, new leases and contracts, debt and so on.

Fieldwork

The bulk of the audit or review process takes place during fieldwork, the phase in which the assurance firm conducts its analysis. This process typically takes place shortly after the end of your construction company’s fiscal year. Key steps include:

• Review or Audit Analysis: The scope of this analysis is driven by whether the assurance firm is providing a review or an audit. In both instances, the assurance firm will assess the accuracy of your financial statements using a variety of techniques. They may also scrutinize long-term contracts, job costing records and work in progress (WIP) schedules. In an audit, you can expect your company’s internal controls and risk management systems to be tested.
• Site Visits and Interviews: Part of the analysis may require the assurance firm to visit your company’s job sites or offices to observe certain operations and interview key personnel.

Reporting

Following the conclusion of the fieldwork, the assurance firm moves on to the reporting stage. During this period, the following tasks will be completed:

• Completion of a Draft Report: This preliminary report covers the findings of the audit, outlines required adjustments, and may provide recommendations for improvements.
• Review and Discussion: Before the final report is issued, you’ll have an opportunity to review the draft report and discuss any findings or concerns with your assurance firm.

Finalizing the Report

After addressing any concerns, the assurance company will finalize the report:

• Issuance of Final Report: If your construction company had a review, it will receive a report that provides limited assurances to readers that no material modifications need to be made to the financial statements. If you were audited, your company will receive a more comprehensive report with a formal audit opinion – the highest possible level of assurance a CPA firm can provide.
• Post-Engagement Meeting: If required, a meeting may be held to discuss the findings of the engagement, as well as any recommended changes or improvements to your company’s financial practices.

Follow-Up and Implementation

Following the conclusion of the audit, the onus is on your financial leaders to make any recommended changes to your company’s accounting practices, internal controls or any other deficiencies identified in the review or audit process. Addressing these issues is crucial to strengthening your business’s financial management.

James Moore: Renowned Assurance Services Tailored to Construction Companies

A review or audit might be an annual undertaking, but it’s best practice to maintain a working relationship with your assurance partner throughout the year. This ensures you can proactively tackle any issues that come up, work on mid-year projections, and even work together on tax planning and compliance issues.

At James Moore, our assurance professionals have deep-rooted experience in the construction industry. With an extensive track record of providing both reviews and audits to construction companies throughout Florida and the Southeast, our professionals have a distinguished reputation for their commitment to delivering value well beyond the scope of a traditional assurance project. Our goal isn’t only to support compliance and accuracy; it’s to help entrepreneurs build efficiently for future growth.

To learn more about James Moore’s construction review and audit services, contact us today.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.