Construction CPA Report: Line-by-Line Sample Walkthrough

If you’ve downloaded our sample construction CPA report or received one from your own CPA, you’ve probably noticed it’s dense: a cover letter, 3-4 financial statements, several pages of notes, and supplementary schedules most other industries don’t use at all.

This post walks through that document, section by section. We use the real numbers from our sample report for ABC LLC. By the end, you’ll know what each part tells a surety, lender, or project owner about your company. And you’ll know what to check before you send your own version anywhere.

(Need the broader answer on when your company needs a review vs. an audit? See our CPA Reviews and Audits in Construction)

Quick Reference: The Sample Report at a Glance

Metric	Figure
Total assets	$1,070,801
Total equity	$102,855
Underbillings (asset)	$279,973
Overbillings (liability)	$681,313
Total revenue	$4,395,432
Gross profit / margin	$529,445 (12%)
Net income	$45,037
Cash from operations	$496,549
Backlog, year-end	$13,171,108
Pending litigation (Note C)	$100,000

The sections below show where each number comes from, and what it signals to a surety or lender.

The Cover Letter: What It’s Actually Certifying

The Independent Accountant’s Review Report sits at the front, the document a CPA Review always includes. It states the scope of the work: mainly analytical procedures and inquiries of management. Then it gives the accountant’s conclusion. In our sample, the CPA says they’re “not aware of any material modifications” needed for the statements to conform with GAAP. That phrasing matters. It’s easy to read it as a stronger guarantee than it is. The accountant isn’t certifying the numbers are correct. They’re saying nothing they observed contradicted them. That’s a real difference. Before you send a report anywhere, check three things here:

• The independence statement: Sureties want confirmation the CPA firm has no financial stake in your company.
• The basis of accounting paragraph: In our sample, this points to Note A. It confirms revenue is recognized on the percentage-of-completion method, not cash or completed-contract accounting.
• The report date: This tells the reader how current the numbers are. A report over a year old will prompt most sureties to ask for something newer.

Balance Sheet: The Two Line Items Unique to Construction

Most of the balance sheet looks like any other company’s (i.e. Checking accounts, Accounts receivable, Fixed assets, Payables). In the sample, current assets total $794,254. Fixed assets, net of $102,439 in accumulated depreciation, equals $276,547. Total assets come to $1,070,801.

Two line items are construction-specific. You won’t see them on a typical small-business balance sheet.

Costs and estimated earnings in excess of billings on uncompleted contracts: an asset, often called “underbillings.” This is revenue you’ve earned but haven’t invoiced yet. In the sample, it’s $279,973, listed right after accounts receivable.

Billings in excess of costs and estimated earnings on uncompleted contracts: a liability, called “overbillings.” This is the reverse: cash collected ahead of work performed. In the sample, it’s $681,313. That’s the largest single line item in current liabilities, bigger than accounts payable ($76,782).

A surety reads the gap between these two as a liquidity signal. Here, overbillings exceed underbillings by roughly $401,000. That generally reads as a healthy working-capital cushion. The company is being funded ahead of the work, not fronting costs out of pocket. Flip that pattern (underbillings bigger than overbillings) and it can mean the company is financing jobs before it collects for them. That raises different questions about cash management.

Total equity is thin here relative to total assets: $102,855 against $1,070,801. That’s common for contractors early in a bonding program. It’s also exactly the ratio a surety will weigh against your bonding request size.

Statement of Income: Where Gross Profit Actually Comes From

The income statement separates contracted revenue ($4,121,583) from other construction income ($273,849). Total operating revenue: $4,395,432. Subtract cost of goods sold ($3,865,986), and gross profit lands at $529,445 – a margin just over 12%.

Below that, general and administrative expenses are broken out by category, not lumped together: payroll ($238,087), insurance ($73,297), professional services ($39,958), rent ($33,204), travel ($16,773), utilities ($12,920), and other operating expenses ($14,601). Total: $428,839. After other operating income, depreciation, and interest, the company nets $45,037 for the year.

Why break out overhead by category? It lets a reader sanity-check whether expenses are proportionate to revenue. Say payroll looks unusually low relative to revenue. That might prompt a question: is labor being properly allocated to job costs instead?

Statement of Cash Flows: Reconciling Profit to Actual Cash

This statement explains why net income and cash movement rarely match in construction. It’s often where lenders spend the most time. In the sample, net income of $45,037 turns into cash from operating activities of $496,549 – more than ten times the net income figure.

The reconciliation shows why. Depreciation adds back $66,104. A $93,690 drop in accounts receivable frees up cash. And the swing in billings in excess of costs contributes $541,374 on its own. That last piece is the overbillings position working in the company’s favor: cash collected ahead of the work being recognized as revenue.

After $104,811 in investing activities (new vehicles, leasehold improvements) and $137,861 in financing activities (loan payments, a $127,340 owner’s distribution), cash increased $253,877 for the year. Ending cash balance: $288,837. That ties directly to the top line of the balance sheet.

This is why lenders read the cash flow statement alongside the balance sheet. They don’t rely on net income alone. A contractor’s profitability and its cash position can move in very different directions in the same year – construction more than most industries.

The Notes: Where the Real Risk Disclosures Live

It’s easy to skim past the notes. Don’t. This is where material risk actually gets disclosed, separate from what the three main statements show.

• Note A confirms the revenue recognition method (percentage-of-completion). It also flags a key caveat: “due to uncertainties in the process of estimating the progress toward completion on uncompleted jobs, it is at least reasonably possible that gross profit on those jobs will be revised in the near-term, and those revisions may be material.” That’s standard language. It’s also a direct signal that gross profit on open jobs is an estimate, not a final number.
• Note B covers related-party transactions. In the sample, none require disclosure. When this note does list related-party loans or transactions, sureties read it closely.
• Note C discloses pending litigation: a $100,000 non-payment dispute with a client, not counting interest, attorney’s fees, or costs. A surety weighs this regardless of how strong the balance sheet looks. An adverse ruling hits cash directly.
• Note D describes the equity structure. In the sample, it’s a multi-member LLC operating on membership interest. That shapes how the equity section on the balance sheet is set up.
• Note G contains the backlog reconciliation – arguably the most-watched figure in the whole package. More on that below.

Backlog and Contracts Schedules: What Sureties Check First

The supplementary schedules sit at the end. But an experienced underwriter often starts reading here, not at the front.

The backlog schedule

shows signed, uncompleted contracts at year-end. Start with a beginning balance of $9,002,605. Add $8,358,020 in new contracts and adjustments. Subtract $4,189,517 in contract revenue earned. That leaves an ending backlog of $13,171,108. This is your forward-looking pipeline. A shrinking year-over-year balance is one of the fastest ways to raise concern with a surety.

The earnings-from-contracts summary

This splits total gross profit two ways: completed contracts ($5,097 in gross profit on $703,478 of revenue) and contracts still in progress ($648,460 in gross profit on $2,986,039 of revenue). That gap is normal. In-progress numbers are estimates. Completed numbers are realized. But a surety notes it.

The contracts-completed schedule

This breaks that same information out project by project. This is where individual problems surface that a blended total would hide. In the sample, Projects A, B, and C all show positive gross profit, roughly 2% to 29% margin. Project D doesn’t: revenue of $60,850 against cost of $146,275, a loss of $85,425. Blended into the company total, that loss disappears into an overall positive number. Listed project by project, it’s the first thing a careful reader asks about. Is it a one-off estimating error? A scope dispute? Or a pattern worth watching?

The contracts-in-progress schedule

This shows the same detail for open jobs – total estimated contract revenue, costs incurred and billed to date, and estimated costs to complete. This is the underlying math behind the underbillings and overbillings figures on the balance sheet. In the sample, the one large in-progress project (Project F) shows $7,549,040 in total estimated contract revenue against $1,574,555 in estimated total gross profit. Revenue recognized so far: $2,986,039. That leaves $100,425 in underbillings and $192,144 in overbillings, which ties directly back to the balance sheet figures above.

What to Check Before You Submit Your Own Report

Once you know what each section shows, reviewing your own report or your CPA’s draft takes only a few minutes:

• Does the backlog trend match what you’d expect from your current pipeline? Or does it show an unexplained decline?
• Are underbillings and overbillings roughly where you’d expect, given your cash position and billing practices?
• Do any individual projects show unexplained losses? Can you explain them if asked?
• Does gross margin on completed contracts roughly track margin on in-progress contracts? Or is there a wide, unexplained gap?
• Do the notes disclose anything, such as litigation, related-party transactions, going-concern language, you should be ready to speak to?

Catch a discrepancy here, and it’s a quick fix. Let an underwriter catch it first, and it costs you time, and maybe the bonding relationship. Keep the sample report open next to your own while you go through this list

FAQs

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Want a CPA who understands construction-specific reporting from the start? Contact Tafe LLC – we prepare review, compilation, and audit-ready financial statements for contractors nationwide.