The most significant benefit of audit preparation is to streamline your audit.
Audit preparation gives your company the ability to have the bulk of the expected requests completed before the audit begins.
Streamlining your audit is critical for:
- Minimizing downtime
- Keeping in-house employees efficient and more focused on their day-to-day activities
- Spending less time going back and forth with your audit firm
- Lowering audit fees
Outside of publicly traded companies, a company may need an audit for a variety of reasons.
- The most common reason is that a company obtains financing from a financial institution, which requires an audit.
- Companies without debt may also be required by their investor(s) to have an audit performed (i.e. a series funding).
- The CEO or BOD may wish to have an audit to maintain good corporate governance. For private companies, audits are generally performed annually.
The length of audit preparation is driven by many factors. Some of the primary factors are:
- The state of a company’s accounting / finance records
- Complexity of the organization structure (i.e. multiple subsidiaries)
- Complexity of the accounting (i.e. Convertible Notes, SAFEs, revenue recognition, FX Translation, etc.)
In our experience as former audit professionals, it is generally best to overestimate the amount of time needed to prepare for an audit, especially a first-time audit. For a small private company, two to three months of preparation is generally best practice.
Audit preparation includes a number of activities. The main activities include:
- Ensuring the trial balance is closed, accurate, and complete.
- Preparing account reconciliations and supporting schedules.
- Researching technical accounting issues and completing memos that cover accounting treatment.
- Preparing financial statements and footnote disclosures.
- Advising the company’s accounting department on the audit process (if a first-time audit).
- Performing analytics.
