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How To Prepare For An Audit

I need to prepare an audit readiness plan for a well funded start-up that is looking for audited financials starting in 2016. I have several items on my list, but I'm probably missing a few things. Are there any items that come to mind or resources you can point me to?


Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

It's your first audit so dare I say....everything!

The following major items comes to mind:
1. All legal documents
2. Cap table
3. All supporting documents/schedules on financial statement numbers. Important items are intangible valuation and startup costs booked and amortized.
4. All financial and administrative policies. Focus on revenue and cost recognition policies. The auditors need to understand your business model.
5. Anything contingent and future business plans. There are instances where it is much easier to give the auditors a selection of your presentation/funding materials.
6. Most of these items will be discussed in the Notes to financials.

I have to note that it is NOT so much as a matter of what (number) is booked but the rationale/"why" it is booked and why it is booked that way. Don't do a Groupon and find out that you are recognizing revenues (and costs) wrong.

One trick I tell CEOs is to "detach" themselves from the company and ask themselves, what do I need and want to know and understand about this company from an investor point of view.

If you are planning to exit (especially an IPO) in the very near future, it is best to start right.

Topic Expert
Wayne Spivak
Title: President & CFO
LinkedIn Profile
(President & CFO, |

I would also plan the audit with your Auditor. The more work you can do, the more you can lower the fee.

Chris Shumate
Title: Accounting Manager
Company: Dominion Development Group, LLC
LinkedIn Profile
(Accounting Manager, Dominion Development Group, LLC) |

As Wayne said, plan with your auditor, which would include asking for their PBC expectations. That'd help get you started in the right direction too.

Of course, they'll need reconciliations of cash, payables, and receivables, but they may ask for things that aren't standard reports.

Emerson has a nice list for you. Along with all legal documents make sure to have any bank covenants, as well as corporate minutes.

If the company has related party transactions they'll need to be disclosed in the notes, as well as the principles of consolidation.

Topic Expert
Wayne Spivak
Title: President & CFO
LinkedIn Profile
(President & CFO, |

Additionally, if you plan your audit ahead of time, then you should have been creating any necessary work papers to support associated transaction which would again streamline the audit process.

While you can't pre-select which invoices, cash receipts or transactions will be selected, properly organized files (whether digital or paper) will speed the collation and delivery to the auditors (again saving time and money for all concerned).

(Controller) |

Also being that you are a start up, you will want to have your business plan ready to discuss with them to eliminate any potential going concern issues.

Roger Hardie
Title: Financial Controller
Company: Expert Home
LinkedIn Profile
(Financial Controller, Expert Home) |

My company is going from a Notice to Reader to Review/Audit path. I arranged to have 2 "Advisories" with the Audit firm at the end of Q2 and Q3. In the Advisories the Audit firm & you can be very transparent. The Auditor provided me with Accounting Notes, formats, reviewed what GAAP changes I needed (Capital Leases, Asset Continuity, Warranty Provisions Revenue Recognition), provided me with tailored Financial Statements, and even gave me a full list of documents that I had to prepare and will review my MD&A. If you are looking for finance then a MD&A is a good financial marketing tool and will Segway into looking like a medium to large organization. The Q2 and Q3 Advisories we set up as trial Audits with all docs, reconciliations, back ups presented. This gives you 2 practice runs. Obviously when your Audit is on the Auditors will have to maintain a professional distance, but during an Advisory the Auditors are more like consultants. Another point is that some of the big 4 Audit firms now have departments that cater for $5 mill to $15 mil companies, and their fees are not significantly higher than the tier 2 Audit Firms. Having a big 4 Audit firm as your Auditor will open up doors.

Lynn Fountain
Title: MBA CGMA CRMA, Past Chief Audit Executiv..
Company: Business Consultant
LinkedIn Profile
(MBA CGMA CRMA, Past Chief Audit Executive, Business Consultant) |

As a long time auditor, I would first suggest you select your audit firm and the work with them on the documents you will need. Otherwise you may be duplicating effort. Of course, you want to ensure all of your policies and procedures are in place, up-to-date and relevant as well as working.

Depending on your auditors area of focus, your balance sheet and income statement make up and your service, you may find the auditors have varying requirements. In addition, if you are at all use a service organization (like a company that process your AP or Payroll), the auditors may need you to have the company provide you with a Service Organization Control report (SOC).

I would also make sure you are familiar with the internal control concepts in COSO 2013 to ensure your organization has established the proper Control Environment, Risk Assessment, Control Activities, Information and Communication and Monitoring processes.

The auditors will undoubtably want to understand your sophistication of use of technology in your business and what threats or opportunities that may bring to you.

However, these are all just guidelines - Work with your Auditors.


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