How to manage your first audit (without losing your mind)

Your first audit is a milestone—a little scary, often confusing, but completely manageable with the right preparation. Whether you’re prepping for a Series C raise, satisfying investor requests, or gearing up for an IPO, an audit is your company’s financial credibility check.

As an accounting leader who's survived and led dozens of audits everywhere from scrappy startups to multi-entity global companies, I’m here to walk you through the process: what to expect, where the pain points are, and how to come out of it smarter (and ideally, still standing).

Do you need an audit?

Let’s start with the "why," because understanding the purpose of your audit will shape everything from your prep timeline to your choice of auditor.

Common reasons companies get audited:

• Investor or board requirement (especially after Series B / C)
• Debt financing / Bank covenant compliance
• Preparing for IPO or M&A event
• Grant or regulatory compliance
• Establishing financial credibility for future scaling
• Internal accountability and process maturity

💡Pro tip: If you’re just starting to think about an IPO or exit, start the audit process at least two to three years in advance. Most buyers or underwriters want a history of clean audit opinions.

Choosing the right auditor

Picking your audit firm is like choosing a contractor to renovate your kitchen: the wrong one makes everything harder, while the right choice makes the whole process feel (relatively) smooth. The primary options include:

1. Big Four (Deloitte, EY, PwC, KPMG)

• Best if: You’re prepping for an IPO, have institutional investors, or your financials are complex.
• Pros: Strong reputation, depth of resources, investor confidence.
• Cons: Expensive, often rigid, junior-heavy teams.

💡Pro tip: Don’t go Big Four if your books are messy or your team is small—it’ll feel like trying to run a marathon in flip-flops.

2. Mid-tier firms (e.g., BDO, Grant Thornton, Aprio, RSM, Crowe, Forvis Mazars)

• Best if: You want technical expertise but more flexibility.
• Pros: Often ex-Big Four partners, more practical approach, reasonable cost.
• Cons: May lack brand prestige for IPO or public markets.

💡Pro tip: Take advantage of your access to the partners for advice, second opinions, and creative solutions. Their extensive industry expertise is valuable as you build your working papers and processes.

3. Boutique or local CPA firms (e.g., Marcum, CohnReznick, Armanino, EisnerAmper)

• Best if: You’re doing an audit for internal or lender requirements and your accounting is pretty straightforward
• Pros: Personalized service at a lower cost.
• Cons: May lack expertise on complex issues, won’t satisfy institutional investors.

💡Pro tip: It’s a good idea to interview at least two or three firms. Ask about turnover rates, their industry expertise, and what level of partner involvement you can expect. Chemistry matters.

Managing the audit like a veteran

Audits have a rhythm. Understanding it helps you control the tempo.

1. Kickoff meeting

Set the tone early. Involve your CFO, controller, and key finance staff from the start.

Checklist:

• Introduce your team and roles.
• Request audit team bios and expertise (e.g., SaaS, manufacturing, international ops) to make sure it aligns with your needs.
• Set up weekly check-ins.
• Establish request protocols: Where are docs shared? Who responds? What’s the turnaround time?
• Document your processes, even if they are basic. A one-pager is better than nothing.

2. The PBC list (prepared by client)

This is your audit to-do list—and it’s long. It includes everything from bank recs to board minutes to equity agreements.

Checklist:

• Categorize requests by process: cash, revenue, equity, liabilities, etc.
• Use a shared audit folder with a clean naming convention (e.g., "2024_Audit_Cash_BankRec_Chase.pdf").

• Assign each section to a specific person on your team.
• Upload only final, reviewed documents to prevent confusion—no drafts, no internal notes.

Key audit focus areas—and how to prep for each

These are the hot spots during an audit. Nail these tasks and your audit will go much smoother.

Cash and bank reconciliations

• Reconcile all accounts through year-end.
• Provide bank statements and signed confirmations.
• Flag unusual items or large reconciling differences.

Revenue recognition (ASC 606)

• Prepare a rev rec memo explaining:
  • Contract terms
  • Performance obligations
  • Allocation of transaction price
  • Timing of revenue
• Provide sample customer contracts and invoices.

💡Pro tip: If you’re a SaaS or multi-element business, use flowcharts to explain your model. This will make it easier to understand.

Expenses and liabilities

• Provide vendor contracts, AP aging, and accrual details.
• Highlight prepaid vs. expensed costs.
• For legal contingencies, get feedback and confirmations from lawyers early.

Equity and stock-based comp

• Provide a full cap table, board minutes approving equity, and option agreements and valuations.
• Ensure your stock comp expense is properly recorded and reconciled.

Related-party transactions

• Disclose all board/investor-related dealings.
• Provide board resolutions and transaction details.

Tax provision and liabilities

• Get your tax advisors to prepare your tax provisions and tax notes.
• Ensure you understand the tax implications of the calculations.

Contingencies and legal matters

• Gather legal confirmations (auditors will send letters to counsel).
• Disclose any pending or threatened litigation.

Subsequent events

• Document anything significant after year-end: funding rounds, acquisitions, layoffs, etc.
• These may require disclosures or adjustments.

Drafting financial statements

Auditors may assist in preparing your financial statements, but realize that you're ultimately responsible for them.

Steps:

1. Use a template (ask your auditors or use prior-year statements).
2. Draft financial statements + footnotes.
3. Send for internal review (CFO, CEO, legal).
4. Create a second draft, then collect auditor comments.
5. Finalize statements with agreed-upon changes.

💡Pro tip: Keep footnotes clear and readable. And don’t just copy / paste them from another company—tailor them to your business.

Final deliverables and wrapping up

Here's what you'll walk away with:

✅ Audited financial statements (with footnotes)

✅ Audit opinion letter (unqualified / clean is what you’re aiming for here)

✅ Management representation letter (you sign, affirming your records)

✅ Management letter (notes on control deficiencies, if any)

6 tips from the trenches

• 💬 Communicate early and often: Don’t let issues pile up. Weekly check-ins to monitor progress are gold.
• 🧹 Clean your workpapers: No half-finished Excel models or snarky comments in cells. Assume everything will be seen.
• 🧠 Don’t outsource judgment: Auditors audit. They don’t make your accounting decisions. Think through and own your treatment and be ready to defend it.
• 🕰 Start early: If possible, do interim work in Q3 or Q4 to lighten the year-end crunch.
• 👀 Ask for feedback: Ask your auditors what you could do to make next year smoother. They’re usually happy to provide suggestions.
• 💡 Think forward: While auditors are looking at the past, treat the audit as a tool to improve for the future. It could highlight the need to build a better close process, tighter controls, or cleaner documentation.

Final words

Your first audit won’t be perfect, and that’s OK. It’s a learning process for your team, and an opportunity to level up your accounting function.

What matters most is that you take ownership, communicate clearly, and treat the auditors like collaborators, not adversaries. They’re just trying to do their job, and the more organized and confident you are, the easier it is for everyone.

And remember: You’ve got this. Audits are hard, but nothing compared to running a growing company.