Key Financial Statement Audit Preparation Tips for First-Time Audits

While the SEC does not mandate that private companies conduct financial audits, many voluntarily opt for an audit to bring credibility and transparency to their financials, whether to meet investor expectations, fulfill loan requirements, secure future funding, satisfy regulatory requirements or prepare for a potential sale. Regardless, a financial statement audit is crucial both to management and to applicable external users of the financial statements. Unsurprisingly, there is a lot of preparation required for being audit-ready, particularly when it’s the company’s first time.

Let’s take a look at key financial statement audit preparation tips that can help ensure your first audit process runs as smoothly as possible:

After management selects an audit firm, there should be regular communication between both parties to establish expectations, timeline and what types of schedules and records the company will need to be able to provide. It’s best to have advanced notice to have the time to address and limit any potential surprises once the audit fieldwork is underway.

The business should have clearly defined control processes and segregation of duties that are adhered to regarding cash, accounts receivable, accounts payable, inventory (if applicable), payroll and the month-end close process. Make sure you inquire regarding what types of internal process documentation would need to be documented for auditor review.

Management should have organized all contracts with:

As well as all equity-related agreements, including: stock issuances, stock options, simple agreement for future equity (SAFE), warrants, and convertible loans and bonds.

Being able to provide support for revenue can often be challenging for many companies.

For the financial statements being audited, management should have detailed schedules that support each balance sheet account as of the end of the fiscal year being audited (and beginning fiscal year balances for a first-year audit). A schedule should not be a running general ledger of transaction activity, but rather an actual reconciled schedule that clearly summarizes the details of the ending balance.

Depending on a company’s business and industry, the auditors may seek certain technical memos. The company should be proactive in communicating with their auditors in determining ahead of time which memos they would need to provide.

Two examples of technical memos an auditor may request are:

Preparing for a first-time audit can be intimidating, particularly for companies that may not have extensive resources. Following these financial statement audit preparation steps ahead of time can help put the company in a position to be better prepared. For businesses that want added support, partnering with a team that offers professional audit preparation services can ease the burden.

Withum’s Outsourced Accounting Systems and Services (OASyS) Team specializes in working with companies to successfully navigate them through their financial statement audit. We can help provide management with the tools and resources necessary to be sufficiently prepared, or we can take the lead and work directly with the audit firm to handle all audit requests from the preliminary stage through completion.

Author: Eric Lowe, CPA | [email protected]