Keep Your Balance Sheet Fit & Functioning All Year Long
Oftentimes, people wait for year-end to get their balance sheets in order. However, a proactive stance to your balance sheet maintenance not only makes year-end reconciliation easier, but it also keeps your company financially fit and agile all year long. Moreover, maintaining a well-organized and fully reconciled balance sheet will help streamline the audit process while freeing up your time to focus on any unforeseen issues that may require additional attention. Read on to learn more about keeping and maintaining a GAAP checklist for construction company financial success.
Read Also: 4 Steps To A Stronger Balance Sheet
Mind Any GAAP Gaps
The beginning of the year is a great time to consider intricate generally accepted accounting principle (GAAP) areas that are likely to surface, particularly when gearing up for your company’s audit or review. If you haven’t yet had an in-depth discussion about these areas with a Construction CPA firm, now is the perfect time to set up a meeting. Taking this proactive step will not only facilitate the accurate management of your financial books but also safeguard against any potential delays in your audit engagement.
Below is an overview of the complex GAAP issues that require your attention, along with their significance for your bottom line and a successful audit. You can also download and print this version as a useful resource and reminder throughout the year.
Business Combinations
Understand the accounting treatment required for acquisitions, particularly the necessity for fair value accounting to ensure accurate financial representation.
Joint Ventures
It is essential to properly account for interests and financial implications in joint ventures.
Accruals For Loss Contracts
Establish proper accruals for any contracts that are expected to incur losses.
Variable Consideration Accounting
Accurately account for variable considerations such as change orders, claims, and liquidated damages, which can affect your financial results.
Pending Litigation In Construction Contracts
Be aware of any pending legal disputes regarding construction contracts and how these might affect your financial reporting.
Indirect Job Cost Allocation
Properly allocate indirect costs to individual contracts to maintain clarity and accuracy in financial reporting.
Revenue Reconciliation
Reconcile current-year revenues and costs between work-in-progress and completed contract schedules and the general ledger for consistency and accuracy.
Self-Perform Revenue Elimination
Eliminate revenues and costs from self-perform construction contracts to prevent double counting.
Lease Accounting
Understand and properly implement lease accounting changes.
Debt Extinguishment
Address the implications of debt extinguishment through refinancing or restructuring to accurately reflect financial status.
Pass-Through Entity Tax Elections
Be aware of relevant tax elections related to pass-through entities that might impact your tax liability.
Debt Covenant Compliance
Stay in line with your debt covenants and address any potential breaches immediately.
Going Concern Issues
Assess any going concern warnings, as they can significantly affect your financial statements.
If you anticipate any issues with compliance regarding your debt covenants, reach out to your banker as soon as possible. Initiating discussions about the waiver process early can prevent delays in the release of your audited or reviewed financial statements.
Let’s Get To Work
In summary, meticulous year-round management and preparation is paramount for a successful audit or review. Rigorous preparation and support from an auditor who understands the unique challenges of construction companies can help you and your team minimize unforeseen disruptions, allowing you to oversee the process with greater confidence and reduced stress. Should you have any inquiries or require assistance dealing with these complex GAAP challenges, contact Chris Mast, Tyler Roesch, or any member of the GBQ construction services team.
By Tyler Roesch, assurance manager, construction and real estate industry services (Columbus office)
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