Preparing for your first financial statement audit

Companies often face their first audit because someone outside the business requires it: a lender, a new investor, a buyer, or a surety. The first audit is the hardest, because years of informal accounting meet a formal review all at once. Preparation makes it faster, cheaper, and less disruptive.

Get the balance sheet right first

Auditors spend much of their time on the balance sheet. Before fieldwork, every significant account should be reconciled with support:

• Cash, tied to bank statements
• Receivables, with an aging that ties to the general ledger
• Inventory, with count results and costing support
• Fixed assets, with a depreciation schedule and support for additions
• Accrued liabilities, debt, and deferred revenue

Review revenue recognition

Make sure revenue is recorded consistently and in the right period. Deposits, prepayments, and multi-period contracts often need adjustment.

Pull the documents auditors request

Expect requests for debt agreements, leases, major contracts, payroll records, board or owner minutes, and support for large or unusual transactions. Having them organized before fieldwork saves days.

Understand cutoff

Auditors test whether transactions near year-end landed in the right period. Review invoices and payments around the year-end date before the auditors do.

Plan for adjustments

First audits often produce adjusting entries. Agreeing on them quickly, and understanding why they happened, helps avoid the same issues next year.

Protect the team's time

An audit adds a heavy workload on top of the regular close. Many companies bring in an interim controller or audit-prep consultant for the first year so the team can keep running day-to-day accounting while the audit gets done.