The CIDB requests for financial statements when applying for grades 3 & higher, the reason for this is for determination of your financial capability score. Financial capability, refers to the company’s future financial muscles to carry out future construction projects successfully. The greater the ability, the greater the CIDB score, the greater the CIDB score, the greater your capacity to bid for higher monetary value construction projects.
Now, contrary to popular belief, most people think that financial capability refers to the amount of cash reserves sitting in your bank account, however, the CIDB does not look at it this way.
The CIDB takes into consideration, your past 24 months revenue together with how many assets you have in your company, less any accumulated liabilities. This information is all determined by looking purely at your annual financial statements.
The only reason that the CIDB requests the bank statement, is purely to verify that you are not lying about your income for the past two years. The financial statements required, must be signed off by an accountant or auditor registered with one of the applicable professional controlling bodies and the accountant or auditor must be in good standing with paid off membership fees with the controlling body.
In addition to this, when the financial statements are submitted, they must be the latest set of financial statements. For example, in the year 2020, you cannot submit financial statements of 2019. If for some reason, you submit an old set of financial statements, the CIDB will be too quick to point out this to you and further request for a new set, otherwise, they shall not proceed with your application.
Now, the revenue or construction income reflected on the financial statements, is used on a sliding scale to determine your grading, in conjunction with other compliance factors. This revenue figure is picked up from the income statement. If your accountant is very good and complies with all the reporting requirements, he or she will also be able to display your net assets value on the income statement, which is another figure that the CIDB looks at.
The accountant must take extreme precaution to ensure that all the prerequisite figures that the CIDB requires are displayed within the financial statements and that they match all the supplementary notes to the income statement as well as the balance sheet.
If the accountant doesn’t comply with these requirements, the financial statements will be thrown out and a new set requested by the CIDB. This of course, will just contribute to the delays within your CIDB registration process. Another issue of importance is to also look at the amount of cash flows that came into your bank account. A number of accountants do their clients a favor by trying to overstate the revenue within the financial statements, However, if the CIDB picks up a variation of more than 10% between what has been reported, and what essentially came into the bank account, then they might request your Vat returns to counter check. The only thing which can be overstated by your accountant, is the net assets value. The CIDB has no any other means of verifying how much assets or inventories you had on at financial year end.
They cannot also determine the full extent of your liabilities. Therefore, this is the only figure that I believe the accountant can do you a favor with, otherwise, all other compliance requirements must be made due to the fact that the CIDB can call upon the documentary evidence as discussed above.
Therefore, in conclusion, I can say that the CIDB, will request for your financial statements, to determine, your financial history in order to foretell the future.
The financial statements must be prepared by a duly qualified accountant or auditor, And that, such financial statements must be in compliance with the International financial reporting standards and issued within the time frames as stipulated by the CIDB.