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CCIFP Exam -With 100% verified solutions 2024-

What is the legal definition of a contract? What is the IRS definition? An agreement between 2 parties that is legally binding & enforceable under applicable law. Strategic planning must consider external factors. These factors change rapidly and are outside the contractor control.

1. Political
2. Regulatory
3. Market Outlook
4. Social
5. Technology
6. Economic Strategic planning must consider internal factors. These factors the contractor can control.
7. Culture, related to financial discipline, risk tolerance, growth, and change
8. Life cycle stage
9. Comprehensive marketing strategy
10. Core competencies
11. Talent acquisition and retention programs
12. Commitment to technology Major cause of contractor failure is The failure to plan and set specific objectives

Strategic Planning A logical and systematic process by which a contractor determines the strategic direction for the contractor's future Strategic Planning Requires knowledge of the risks inherent in the construction industry and of available new business opportunities Strategic Planning Process encourages

1. Assessment of your company's current condition
2. Examination of current business model and the way you would like to do business in future
3. Development of new future operating methods in estimating, preconstruction, marketing and sales
4. Commitment to set strategic goals and plans to meet them
5. Creation of momentum necessary to start and carry out the implementation of strategic plan What are the 2 coverage triggers for CGL?
6. Occurrence Trigger - Whatever policy in place a the time of the claim happening is policy used.
7. Claims Trigger - (Not used much) Made trigger policy in place, Policy extended What is the legal definition of a contract? What is the IRS's definition of a contract?

An agreement between two parties that is legally binding & enforceable under applicable law What is RAID? Redundant array of Independent (or inexpensive) disks.

• Data spread out over several disks, users access simultaneously.
• Normally used by servers in multi-user environments What is the disclosure on the balance sheet for anticipated losses on contracts? Estimated liability to complete contracts What is the IRS's definition of a "Home Construction Contract"? Contracts if 80% of the total contract costs are:

1. Dwelling units, 4 of fewer
2. Improvements directly related to such dwelling units
3. Excluded from IRC 460 - Special rules from long term contracts What is LAN? Local Area Network What is the difference between cloud computing & virtual environments?

• Cloud computing allows access to data through a browser
• Virtual environment allows remote access to data, but access software require on computer to access

What is the "look-Back" requirement? Taxpayer using percentage of completion must redetermined contract profit in year of completion and difference reported in periods are subject to interest charge or refund. What are the 4 types of contracts?

1. Fixed price or lump sum
2. Time & Material
3. Cost-type contracts
4. Unit Price What is a fixed price or lump sum contract? The price is not usually subject to adjustment What is a time & material type contract? The price is based on direct labor hours and cost of materials What is a cost-type contract? Provides for reimbursed of allowable or other defined costs incurred plus fee. Can also include a gross max (GMP) What is a unit price type contract? Contractor pays a specific amount per unit, variable is the number of units

What are 2 accepted methods of accounting - reporting?

1. POC - Percentage of Completion Method
2. CCM - Completed Contract Method What are the 5 steps of strategic planning?
3. Develop an understanding of the existing business (depending on what contractors perform)
4. Identify new business opportunities (expansion)
5. analyze alternatives (Risks, additional capital cost etc)
6. Develop a strategic plan (should be written & used to measure progress)
7. Implement the plan What are 2 types of remedy clauses in contracts?
8. Increase the scope of work
9. Offering site conditions That is the zero gross profit option for the completed contract method? Recognize revenue and cost for period, but zero gross profit allow company to show costs for the period When accounting for losses, what is recommended method of recording? Should be as additional costs not reduction of revenue

What are the 4 ways to manage cash?

1. Accelerate collections
2. Decelerate disbursements
3. Increase investment options
4. Decrease borrowing needs Who can use the percentage of completion method for the IRS? Residential contractors and certain shipbuilders What is a labor & material payment bond? Guarantees that those who perform services & provide material will be paid What are the tools a project manager will use to analyze capital expenditure?
5. Net investment cash outflow - beginning of the project purchases
6. Operating cash flow of investments
7. Determining pay back period IRS definition of a small contractor and what is the exception
8. Contracts completed within 2 years
9. Average annual gross receipts for preceding 3 years do not exceed 10 million

• Exempted from percentage of completion method

What is the IRS's principal source of legislative guidance for the construction industry? IRC (Internal Revenue Code) Section 460 - Special rules for long term contracts What is ABC? Activity Based Costing

1. Links indirect costs to activities 2)Allocates "activity" cost to jobs based on specific attributes What is a retrospective rating plan? Premium determined after policy expired based upon actual loss experience
2. Incurred Loss - Insurer holds loss reserves until losses incurred
3. Expected Loss - Premium calculated on expected loss amount What are the 2 conditions that need to be met for indirect costs to be deferred as contract costs for completed contract method or percentage of completion method?
4. Costs related directly to performance of specific contract-in-progress
5. Costs related directly to the contractor's contracting activities What are financial guarantee bonds? Used for financial contracts i.e. Release of lien guarantee payment of wages and fringe released retention (when not in A/R)

What is SOP & What does it mean? From the AICPA - Statements of Position When was SOP 81-1 Issued? 1981 What is the codification number of 81-1? 605-3S What is a bid bond?

• Done when the project is bid
• States that contractor will enter into a contract when tendered by the owner @ price bid and the contractor will file a performance & payment bond
• Surety does a "pre-qual" to make sure that the contractor has capacity What are 2 types of wrap-up plans?

1. Owner controlled insurance program (OCIP)
2. Contractor controlled insurance program (CCIP)

• Procurement by one party of policies protecting owner and contractors involved What are the 4 steps to implementing ABC (Activity Based Costing)?

1. Understand the process to be costed

2. Identify activities within the process
3. Trace cost to activities using an activity survey or through payroll codes
4. Link cost drivers to cost objects What is the Cost to Cost method of percentage of completion? What should be excluded from the calculation? Step 1 - Costs to date / total estimated cost = percent complete Step 2 - percent complete x anticipated profit = amount earned to date Excluded from this calculation is stored materials and uninstalled materials What are the four risk management techniques?
5. Avoidance - Avoid risks associated with a particular operation or situation
6. Retention - Assumption of risk by contractors (needs budgeting)
7. Safety & loss control
8. Risk transfer - a) Contractually - transfer risk from owner to general contractor to sun contractor b) Insurance - liability, builders risk, purchased after all possible risks are transferred what are the four requirement for using completed contract method?
9. Reliable estimates can not be made
10. Differenced between using percentage of completion and cost complete method are significantly different (i.e. short term contracts)
11. Contract terms & scope not specific
12. performance requirements not defined for all parties.

What are the 3 aspects unique to the cash management of a construction company?

1. Business is project- oriented
2. Retainage
3. Multiple levels of contractor & subcontractor relationships What are 2 types of warranties?
4. Express - Can be written or oral(such as a course of dealing) Arises from negotiations
5. Implied - Not part of contract terms "caveat emptor" let the buyer beware - implied by law What are some techniques to maximizing cash flow?
6. Receipts a) aggressive billings b) No client checks through the mail c) Internal cash handling (get money to the bank ASAP)
7. Disbursements
8. Investments - short term low risk
9. Negotiate contract terms - Retention - Incentives - Billing frequency - Depsoits Using the percentage of completion method - what are the subtopics under reliable estimates?
10. Personnel - must have experience necessary

2. Accounting systems & access to information - those estimating must have reliable information and access to that information What are 5 options for CF plans and self insured?
3. Safety groups - usually trade associations and use dividend plan
4. Group and risk pools - not-for-profits organized to cover contractors
5. Large deductible - generally over $100,000 best to reduce costs
6. Self-insurance - contractor retains all risk
7. Captive insurance companies - subsidiaries owned by organization & primarily established to insure losses from owner What are the 3 major principles used by the law for contract interpretation? Describe each.
8. Course of performance - interpretation of a provision before controversy arises
9. Course of dealing - interpretation of particular contract provision by evaluating same in previous contracts between parties
10. Usage of trade - way particular trade/industry deals with disputed language What are 3 types of contract revenue issues of reporting?
11. Management contracts - contractors only manages and doesn't have risk or reward of own project
12. Owner - furnished materials
13. Incentive and penalty provisions - contracts contingent on performance Define exculpatory and indemnification provisions of a contract

Exculpatory - absolves a party from responsibility of their own actions Indemnification - to hold harmless a party (I.e. Property or person injury on job) Risk insurance generally resolves this What are performance bonds? They guarantee that the contractor will perform to the terms and conditions of the contract and project will be built per the plans and specifications What are the 4 requirements to using the percentage of completion method?

1. Reliable estimates
2. Clearly specified conditions in a contract
3. Reasonable expectations for performance
4. Risk should not exceed those normally encountered What are some of the guidance issued with notice 89-15?
5. Definition of long term contract
6. Effective date of IRC 460
7. Determination of accounting method
8. Applying PCCM/CCM
9. Aggregating and severing contracts
10. Allocation of costs to contracts
11. Small home and residential construction contracts
12. Changes in method of accounting

What are guaranteed cost rating plans? What techniques can be used to reduce costs to enhance cash flow? Contractors premium is computed at the beginning of policy

1. Premium discounts - graduated percent reduction based on premium level
2. Small deductibles
3. Dividend plans - return of premium after expiration
4. Premium payment plans What are the risks related to each measurement standard?
5. Cost to cost
6. Efforts method
7. Output method
8. Estimates are the risk
9. Production amount varies
10. non-uniformity of method i.e. Railroad track through flat land then through mountain (which would be higher) What is benchmarking? Process of measuring actual results against a predetermined standard or target When can a contractor recognize a claim per SOP 81-1? 4 requirements
11. Legal basis for claim
12. Additional cost could not have been anticipated at original contract date and not a result of contractor deficiency

3. Cost are identifiable and reasonable
4. Claim is objective and verifiable What are the 4 exclusions and restrictions on Commercial General Liability?p
5. Contractual liability excludes coverage for liability assumed by contractor in a contract
6. Pollution
7. Property damage
8. Professional liability What is capital budgeting?
9. Planning capital investments
10. Evaluating and selecting best projects from range of alternatives What are factors for surety underwriting? Three CS
11. Character
12. Credit
13. Capacity Also 4) Cash

• Character and integrity
• Managment Organization structure Succession Advisory staff (legal and accounting) Financial managment

Name the 6 main types of claims and describe

1. Delay - delay on site - compensatory and concurrent delay - non compensatory 2 or more delays
2. Disruption - acts that prevent completion by contractor
3. Acceleration - owner orders contractor to complete sooner than contract stipulates
4. Changed conditions - differing site condition from original contract, could be known or unknown
5. Scope changes - 80 to 90%of claims result of this, contractor believes it's additional work, owner disagrees
6. Termination - government contract Default - one side breach Convenience - either side can terminate When does a claim exist? When the owner rejects a contractor's request for additional money or time What are 4 methods to determine payback?
7. Payback period - cost of proposed divided by annual cash inflow
8. Internal rate of return - rate of return on invested capital higher the IRR, more desirable the project
9. Net Present Value (NPV) - NPV stated as a dollar amount - NPV should be positive to ahead on project
10. Profitability index (PI) - greater than 1 means NPV is positive

What are 2 major methods of determining percentage of completion of a project? Other methods?

1. Cost to cost
2. Physical completion method (should not deviate significantly from cost to cost)

• Other

1. Efforts - expended
2. Units of delivery
3. Units of work performed What is IRC 460 definition of long term contract? Any construction of property not completed within the taxable year contract began What does the AICPA recognize as the authoritative standards? When was it formed? FASB - financial Accounting Standards Board Formed 1973 What is suretyship? Guarantee of one party (the surety) for the performance of the principal (the contractor) What are the 3 components and what are the differences on the statement of cash flows?
4. Investing activities - generally involve anything considered in non- current assets

2. Financing activities - generally involves non-current liabilities and equity
3. Operating activities - current assets and liabilities What is SWOT in strategic planning? Strength (internal) Weakness (internal) Opportunities (external i.e. regulatory issues) Threats (external i.e. regulatory issues) Why is strategic planning important? Encourages:
4. Commitment to a set of goals
5. Momentum to carry out plan What are acceptable measurement standards when using percentage of completion method? Describe each measurement.
6. Cost to cost - costs incurred
7. Efforts method - labor hours incurred
8. Output method - completed miles of highway "as a example" used when uniformity of output When does the look back requirement not apply?
9. Contract completed within 2 years

2. Gross contract price lesser of 1 million or 1% of annual gross receipts for prior 3 years What is the IRS definition of a "residential construction contract"? More than 4 dwellings, excluding row houses and townhouses as they considered separate dwellings. Excluded from IRC 460 List 6 external users of finacials
3. Owners
4. Sureties
5. Banks
6. Vendors
7. Customers
8. Licening What is the deductibility of a per diet paid to an employee? Treasury takes the position that 40% of per diet is meal expense and only 50% deductible to employer What are 2 methods used as measurement of completion for percentage of completion method?
9. Input - measures costs
10. Output - measures results What is Alternate Dispute Resolution in contract law?

Doesn't include litigation or arbitration Could be mediation, mini-trial negotiation What are the two definitions of contract completion on IRS 460? The earlier of:

1. Use by customer & 95% of allocable costs incurred or
2. Final completion and acceptance What is the eichleay formula and what is it used for? Used to calculate home office O/H costs for claims - government contracts Allocation of basis of ratio
3. Contract billings of disputed contract/Total billings (during contract period) = O/H%
4. O/H% x Total O/H (during contract period) = allocated O/H
5. Allocated O/H / Days of contract performance = O/H per day What is "force majeure"? Excusable delay What is new authoritative GAAP literature & when was it implemented? Accounting Standards Codification (ASC) Implemented June 2099 According to SOP 81-1 what is a profit center?

Profit centers:

1. remediation
2. operation, maintenance and monitoring. Earn revenue from fixed-price, time-and-materials and cost-plus contracts as described below. What are combined and segmented contracts? Presumption is each contract however, could be
3. Combine contracts - group of closely related contracts negotiated as a package
4. Segmenting - phases negotiated separately and all may not be performed What are the 2 methods of accounting for losses and/or changes in estimates?
5. Cumulative catch-up method - accounts for adjusted gross profit in current period (we use this method)
6. Reallocation method - accounts for adjusted gross profit from prior periods ratably in current and future periods What does general liability insurance cover? What is CGL? Covers - bodily injury and property damage (job site and office) CGL - Commercial General Liability Which method of accounting (CCM OR POC) does capital interest have the greatest impact and why? CCM, because costs are deferred and only recognized when contract is completed

Define the current asset and liability accounts for percentage of completion? Costs in excess of billings (asset) under billings Billings in excess of costs (liabilities) over billings What is a wage structure? Wage structure is hierarchy of jobs assigned pay grades and ranges What are the components of wage structure?

1. Job families - jobs that function in a similar capacity (i.e. Superintendents and estimators different family)
2. Pay grades - jobs that have similar worth to the company
3. Minimum wage - base pay
4. Midpoint - 1/2 of employees higher & 1/2 lower than midpoint
5. Maximum wage - highest wage company will pay for a particular job What are two methods of statement of cash flow reporting and differences.
6. Direct method - reports gross cash receipts and payments and separates interest income and interest expense
7. Indirect method - adjusts net income to reconcile it to net cash from operating activities Why would contractor need to use the completed contract method?
8. Contractor is unable to reasonably estimate the percentage of work performed or total costs to complete

2. Lots of short term contracts What is FASB preferred method of statement of cash flow reporting? The direct method is preferred What is umbrella liability for? What can it cover? Provides coverage for catastrophic losses
3. Personal injury
4. Properly damage
5. Advertising liability What are the financial managers 4 objectives?
6. Profiability a) Monitor and accurate reporting b) Allocate unapplied contract costs c) General and administrative d) Financing and investment income
7. Liquidity (cash flow)
8. Financial reporting
9. Internal accounting controls What are maintenance or warranty bonds? Guarantees against faulty workmanship or materials for period specified under the contract

What are the 8 items Chief Financial Managers need to look at when reviewing contracts?

1. Contract documents
2. Remedy clauses
3. Scheduling provisions
4. Exculpatory and indemnification provisions
5. Bonding and insurance provisions
6. Course of performance, dealing, usage of trade
7. External factors that affect performance "force majeures"
8. Dispute resolution What are the 2 limits of liability for a commercial general liability?
9. Aggregate - restricts the amount the policy will pay
10. Occurrence - limits by each occurrence What problems can costs in excess of billings indicate?
11. Unit costs are greater than bid amounts or unexpected costs
12. Contractor using funds to purchase materials
13. Poor billing cycle
14. Error in estimated costs What is a monopolistic fund state and who are they? 4 states where insurance only purchased through the state
15. ND

2) OH

3) WA

4) WY

What is 10% election? Taxpayer uses PCM but excludes income recognition for contracts less thN 10% complete What are the 4 IRS recognized methods of revenue recognition?

1. PCM - cost to cost only
2. CCM - limited to small contracts (completed within 2 years and annual gross receipts less than 10 million
3. Cash
4. Accrual What is WAN? Wide area network - connects a remote office to main network What is ISO stand for? Insurance services office What is CRM software? Customer relationship management
5. Logs calls
6. Logs any contract with customer