Congratulations, you have an audit requirement! That means you’ve likely been successful in obtaining outside investment in some shape or form. Or perhaps you are reading this knowing that an audit requirement is looming as soon as the deal is inked, and you want to be prepared. In either situation, we get it: all your attention has been on growing and operating the business, so a financial statement audit may seem a bit daunting.
The good news is that some of the best ways to prepare for your technology company’s first audit are not complex, and don’t require a ton of financial investment. For example, a robust accounting system or team is not critical for a smooth audit. Regardless of how much money is raised, what accounting system is in use, or how many people are in the back office, these three strategies help position a company for a successful initial audit.
1. Designate a Point Person
Most high-growth tech companies do not have a full accounting and finance team in place prior to the first audit, and that’s okay. The person responsible for overseeing the audit does not need to be a CPA, however, they should have a good understanding of basic financial accounting concepts to respond to audit questions and requests, and help management make decisions or interpret audit findings. Typically, this person is busy running the day-to-day accounting or operations, and may find it difficult to juggle these daily responsibilities along with the audit. An audit can be time consuming, and that’s why it’s imperative that upper management emphasize the importance of the audit and create an environment that allows for the dedication of sufficient resources.
2. Get Organized
Now is the time to ensure that all the company’s such as articles of incorporation, bylaws, leases and all agreements related to acquisitions, equity and debt etc., from inception-to-date, are easily accessible and organized. The auditors will request the signed copies, so be sure to have the executed versions of all documents on hand. In addition, auditors will request bank statements, vendor invoices, and other documentation throughout the audit process. Having easy access to these documents will make responding to the auditor’s requests easier. If possible, obtain the auditor’s requests early and consider creating a single location where all audit requests can be stored, organized and accessed.
3. Maintain Adequate Accounting Records
In addition to the historical records, auditors will request supporting schedules for most significant accounts or transactions. It’s important that the records are up to date and that all accounts are reconciled. Take a deep dive before providing requests to ensure that they contain accurate and complete information. In particular, focus efforts on ensuring proper cutoff of accounting activity at the end of your fiscal year. Most accounting software packages and related add-on solutions come with the tools to prepare the most essential schedules: a bank reconciliation, accounts receivable aging, accounts payable aging and deferred revenue schedule. In other cases, certain schedules may need to be created from scratch to support the account balances, so having an accountant either on staff or contracted to assist with audit support is recommended.
By dedicating the time and resources into the above three strategies, your company will be well-positioned for its first financial statement audit. Even if all the above boxes are checked, having open discussions with your auditors about potential complex areas such as equity compensation or revenue recognition prior to the start of the audit can help bring issues to light and ensure a faster turn-around time.
If you are interested in learning more about the specific requirements of a financial statement audit, please feel free to reach out to Aronson’s Assurance Services Group at 240.630.0702 to schedule a call.