Preparing for Your Technology Company’s First Audit: 5 Tips to Ensure Success

Undergoing your technology startup’s first audit can be daunting. Here are a few tips to help ease the stress.

You’ll need the cooperation of several key team members to navigate your first audit successfully. Your auditor will need to understand your accounting policies and your general business practices. Ensure key team members with knowledge of accounting, HR, sales, and operations are ready to participate in the audit process.

It is common for startup companies to operate without a robust accounting team in their early stages. For that reason, before the first audit it is common for financial statements to be on a cash basis or have other deviations from U.S. Generally Accepted Accounting Principles (“US GAAP”).

Before beginning your first audit, ensure the company’s accounting records are brought in order. This includes reconciliations for all balance sheet accounts, documented accounting policies for key areas, and ensuring your supporting documentation is available and organized.

As mentioned in #2, there are several common accounting issues in startup company financial statements. Ensure you engage someone with the necessary understanding of U.S. GAAP accounting rules to facilitate the audit. Some of the most common areas of accounting complexity include:

See this article for more detail around these complex areas:

5 of the Most Common Audit Challenges We See with Tech Startups

Understanding the business need for the audit is crucial to building the timeline. Knowing who is counting on the audit report (such as lenders or investors) can determine whether there are any hard deadlines to meet.  Once you establish a deadline, work with your auditor to lay out a detailed timeline.

The audit process is iterative and requires management’s cooperation throughout, so it is important to establish key milestones with your auditor to ensure both parties stay on track. Request regular check-ins with your auditor to ensure any issues are resolved timely.

Initial audits take time to complete, so be sure to communicate proactively and continuously with key stakeholders to manage expectations.

At the end of each audit, your auditor will provide you with their report as well as more detailed results for management’s consideration. It is common for startup companies to receive recommendations from their auditor on areas needing improvement. Common deficiencies the first time through an audit include a lack of supporting records, improper segregation of duties, or insufficient internal controls.

Talk through the findings with your auditor, discuss remediation priorities with the Board of Directors or Audit Committee, and make a plan to begin implementing their suggestions. At the end of the audit, you should also provide feedback on the process to you auditor because developing a good working relationship with your auditor requires providing feedback in both directions for shared success.

Use this checklist to assess your readiness. Audit Readiness Checklist – Technology Company (First Year Under Audit)

When choosing an auditor, look for a firm experienced in the auditing of startup companies who will be prepared to partner with your company throughout the process. At Sensiba, our technology accounting team has helped hundreds of startups navigate their first audits successfully. Contact us to discuss your company’s needs.