By Lars Isaacson, CPA
You’ve worked hard. You have experience and passion, and you’re ready to take the next step in your career by applying for licensure as a North Carolina general contractor.
Often, as contractors work on satisfying requirements of the North Carolina Licensing Board for General Contractors (the Board), questions arise at the mention of an audit or agreed-upon-procedure (AUP).
In this article, experts from the construction and real estate team at PBMares provide an overview of the purpose of such an audit and the procedures involved.
Why Does a General Contractor Need an Audit to Obtain Licensure?
An audit or the performance of AUPs provides assurance and reliability to the Board — and the general public — that you have the financial strength to see a project through.
One alternative to the audit is obtaining a surety bond. However, because the bond cost can be up to six percent of the face value, having an audit performed is generally more cost efficient.
What Is Involved in an Audit to Become a Licensed General Contractor in North Carolina?
Audits or AUPs are financial services provided by a CPA firm.
The CPA obtains your financial information, subjects it to varying levels of testing, and concludes whether the financial information is fairly stated and in accordance with prescribed requirements.
Audit procedures vary based on the size and complexity of the general contractor’s business. Larger operations require more audit procedures and higher fees.
3 Key Steps for an Efficient General Contractor Licensure Audit in North Carolina
At PBMares, we understand that an expensive audit is a hurdle for many applicants. That’s why we recommend the following steps to keep time and costs to a minimum.
- Step 1: Create a new legal entity in the form of a subsidiary of the existing operating company. Use this subsidiary to apply for the contractor’s license. The subsidiary can sub out work to the operating company, so you can still leverage the value in your existing trade name.
- Step 2: Fund the new entity with the required amount of capital (determined by the level of the license you need). Working capital requirements will be satisfied by an equity contribution. It’s important not to use a short-term loan.
- Step 3: Engage a CPA with appropriate experience to audit the financial statements as of the funding date. This way, there is no other activity that would fall into the scope of the audit. In essence, the audit would only focus on the newly formed entity and its one transaction.
Learn More
PBMares’ construction specialists Lars Isaacson, CPA and Jennifer French, CPA work with clients ranging from small contractors to million dollar organizations throughout the Eastern United States.
If you are ready to apply for a general contracting license in North Carolina, the experienced CPAs at PBMares can guide you through the audit requirement and partner with you to complete the audit in the most efficient and cost effective way.
