Accounting
Preparing for Your First Financial Statement Audit
A timeline and checklist for companies facing their first GAAP audit, from revenue recognition to the PBC list.
Published: 2 min read
Your first audit usually arrives because someone else requires it: a lead investor after a Series A or B, a lender with covenants, or a large customer doing vendor due diligence. The audit itself takes a few weeks. Preparing for it properly takes longer.
Start ten weeks before fieldwork
A realistic first-audit timeline looks like this:
- Weeks 1 to 2: readiness assessment against U.S. GAAP
- Weeks 3 to 6: remediation, adjusting entries and schedules
- Weeks 7 to 8: select the audit firm and agree the PBC list
- Weeks 9 to 10: final close and preliminary analytics
- Fieldwork: usually two to four weeks
The areas that cause the most adjustments
Revenue recognition (ASC 606)
Startups often recognize revenue when cash is received. Under GAAP, revenue is recognized as performance obligations are satisfied. Annual prepaid contracts, implementation fees and usage-based pricing all need careful treatment.
Leases (ASC 842)
Office leases longer than twelve months must be recorded on the balance sheet as a right-of-use asset and lease liability. This is frequently missing in first-time audits.
Stock-based compensation
Option grants need to be valued and expensed over the vesting period. Your cap table provider can produce the reports, but they must be reconciled to the ledger.
Accruals and cut-off
Expenses incurred in the period must be recorded in the period, even if invoiced later. Auditors will test invoices received after year end.
What goes on the PBC list
The prepared-by-client list is the auditor's request list. Expect to provide:
- Trial balance and general ledger
- Bank reconciliations and confirmations
- Revenue contracts and a revenue waterfall
- Fixed asset and lease schedules
- Equity roll-forward and option reports
- Accrual support and subsequent disbursements
- Board minutes and significant agreements
Every schedule should tie to the trial balance. A schedule that does not tie generates follow-up questions and adds days to fieldwork.
Choosing an auditor
Pick a firm with experience in your industry and stage. Ask about their timeline, the team that will be on site and how they bill for additional work. A smaller specialist firm is often a better fit than a large firm for a first audit.
After the audit
Read the management letter carefully. It lists control weaknesses and recommendations, and next year's auditors will check whether you addressed them.
Our audit support team has guided more than 70 companies through their first audit.
