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?
How To Prepare For An Audit
Answers
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.
I would also plan the audit with your
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.
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).
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.
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
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,
The auditors will undoubtably want to understand your sophistication of use of
However, these are all just guidelines - Work with your Auditors.