Financial Statement Audit Preparation for Startups
Developing accurate, timely, and reliable financial statements is challenging for any startup or emerging growth company – especially prior to an audit.
As experts in helping startups and emerging growth companies establish financial statement audit success and efficiency, we’ve outlined some of the most common challenges of the financial statement auditing process alongside some steps to properly prepare.
What is a Financial Statement Audit?
The goal of a financial statement audit is to provide an independent, objective view of a company’s financial performance, cultivate stakeholder trust, and ensure reliable decision-making.
This process involves the analysis of a company’s financial statements (balance sheets, income statements, cash flow statements, etc.) by an external auditor to ensure they are accurate, reliable, and developed in accordance with Generally Accepted Accounting Principles (GAAP) and other standards and regulations.
Common Financial Statement Audit Preparation challenges for startups and emerging growth companies:
- Properly attributing internal resources to ensure a successful financial statement auditing process.
- Compiling historical financial data and ensuring accuracy and reliability of related documentation and information.
- Complying with complex and ever-evolving laws and regulations.
- Having weaknesses in controls and/or processes that cause timeline delays and incur additional costs during the auditing process.
- Managing auditor requests and strict deadlines.
- Experiencing friction with customers and stakeholders if an audit is failed.
Tips & Steps to Successfully Prepare for a Startup or Emerging Growth Company Financial Statement Audit
- Gain an understanding of financial statement audit requirements
- Gather and analyze financial data
- Assess internal controls
- Conduct account reconciliations to avoid delays and incurred costs
- Communicate effectively with auditors
- Document the process and conduct a final pre-audit review to correct any outstanding issues identified within earlier steps
- Consider hiring a consultant to provide guidance and ensure a smoother financial statement auditing process
1. Gain an understanding of financial statement audit requirements
It is essential to understand the financial statement audit requirements the startup or emerging growth company must adhere to by reviewing the audit engagement letter.
This document outlines accounting standards and regulatory requirements the company must comply with, the auditor’s roles and responsibilities, a timeline for the auditing process, and any auditing fees.
Understanding these items is essential for getting ahead of potential issues before they arise and setting the stage for future success.
2. Gather and analyze financial data
Next, it’s essential to compile, organize, and analyze financial data for the auditor’s review as soon as possible to provide them with access to all the information they need and save time during the auditing process.
This includes gathering balance sheets, income statements, cash flow statements, and other financial documentation that will help the auditor ensure the reliability of startup or emerging growth financial statements and reports and identify any inconsistencies that need to be corrected.
Alongside this step, conduct analyses of financial statements by comparing them to previous periods and industry benchmarks to provide an additional opportunity to correct issues before this information makes its way into an auditor’s hands.
3. Assess internal controls
Properly preparing for a financial statement audit also requires assessing internal controls to ensure the organization and assets are safeguarded from risk, such as cybersecurity attacks, fraud, and other costly issues.
4. Conduct account reconciliations to avoid delays and incurred costs
One of the main reasons why additional fees are incurred during the auditing process is due to reconciliations.
Conducting account reconciliations as soon as possible will help identify omissions, unauthorized transactions, irregularities, or suspicious activities while ensuring all transactions are properly accounted for.
This will provide an auditor with additional evidence that the startup or emerging growth company’s financial statements are reliable and accurate.
5. Communicate effectively with auditors
Delays during an audit can distract from the day-to-day duties organizations need to conduct to reach their overall business goals – and these delays, in turn, can incur additional costs.
Throughout the course of the financial statement audit, it’s essential to establish effective communication processes with auditors to make sure they have everything they need, foster efficiency, cultivate a trusted relationship and avoid additional auditing fees.
6. Document the process and conduct a final pre-audit review to correct any outstanding issues identified within earlier steps
After everything has been compiled, it’s in good practice to review all the information one last time to provide a final chance to correct outstanding issues before an auditor steps in.
In addition, documenting the steps taken during the auditing process by outlining the decisions made and the rationale behind them will provide further evidence that the organization is making efforts to comply with laws and regulations – and save time during next year’s audit.
7. Consider hiring a consultant to provide guidance and ensure a smoother financial statement auditing process
The financial statement auditing process is wrought with complexity and requires adequate planning to ensure success.
Outsourcing the process to a trusted partner helps alleviate the challenge of tracking down relevant financial data and insights, establish reliable methods for financial reporting and documentation, ensure swift compliance with laws and regulations, and collaborate seamlessly with auditors, company employees, and other stakeholders.