The surety industry is simplifying the way it reviews a contractor’s financial statements, including work in process (WIP) reports, to identify risks and determine eligibility for surety bonds.
The National Association of Surety Bond Producers (NASBP) and surety companies AIG, GALLINA LLP, Liberty Mutual Surety, Travelers and Zurich, are conducting a pilot on the use of standards to reduce costs and streamline processing when transferring financial data among construction CPAs, contractors, agents and carriers. As part of this pilot, a glossary of digital terms (the technical term is XBRL taxonomy) has been developed to represent the WIP report. Other participants in the working group are the Construction Financial Management Association (CFMA), the Financial Accounting Standards Board (FASB) and the Surety & Fidelity Association of America (SFAA).
Adding WIP data standards to the existing XBRL standard for financial statement reporting will allow sureties and other creditors to quickly analyze a contractor’s complete financial report to shorten response time. The faster the surety can analyze the WIP and adjust the backlog, the more responsive it can be to contractors that need surety credit. In addition, computer-readable data enables better and faster benchmarking. Some vendors of financial statement data can show benchmarking between similar construction companies. Contractors will be better able to benchmark the performance of their own process compared to other companies. XBRL formatting ultimately will be integrated into standard financial packages used by contractors so that it will simply be part of their standard process.
Contractors will create XBRL-formatted financials and WIP reports by using pre-formatted Excel spreadsheets that are mapped to the WIP Taxonomy or by extracting information from their own internal financial systems. The surety receiving the XBRL-formatted financials can ingest the data automatically into their financial management systems after they’ve performed a one-time mapping that allows them to read the concepts reported.
XBRL (eXtensible Business Reporting Language) is a structured data standard that makes business and financial information computer-readable and more easily processed. It is currently used in the U.S. for financial statement reporting by public companies and banks. The taxonomy includes financial terms used in the WIP report (revenues, costs and percentage complete), which the surety relies on when bonding contracts.
Effective in 2017, federal agencies must report expense data in XBRL, which includes surety bond financials.
A webinar, Improve Surety Underwriting Processing through Standards, hosted by XBRL US and NASBP, explains the pilot to use standards to automate WIP reporting. The webinar covers:
- review of the business case for standards in the current surety underwriting process;
- demonstrations of tools that can be used to create and consume an XBRL-formatted WIP report; and
- demonstration of the digital dictionary (taxonomy) of terms created to support WIP reporting.