CEO and Founder of Kruze Consulting
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Probably not. We serve hundreds of VC-backed startups, and only a small handful get audits. Audits are a tremendous amount of hassle, and most professional venture investors do not want to burden their founders with an audit. Even if you are prepared (and we make sure our clients are!), getting an audit is cumbersome.
A lot of folks throw around the word “audit” without really knowing that there are 3 types of financial statement services that your CPA can provide: Audit, Review, and Compilation. The AICPA has published a fabulous comparative report on these types of services here. In a nutshell, a CPA can both prepare the financial statements AND provide a Compilation Report, but they must be independent is they are to provide a true Audit Report. Additionally, the CPA issuing the report must be “Audit” certified in order to legally sign off on the report. You can check to see if your CPA can provides here.
Kruze Consulting’s top picks for Startups in the Seed to Series C stage are Deloitte, Armanino, Moss Adams, BPM, BDO, and Frank Rimerman. These startup audit divisions are typically called “emerging growth.” Depending on your industry, we can advise on the best pick for you. Feel free to email me at firstname.lastname@example.org help.
We’ve seen that most startups audits cost between $20,000 - $50,000. These prices are for SF and NYC based startups that are between Seed to Series C stage, hiring a high quality (but not Big 4) CPA.
Between 1 to 3 months.
As a private company, startups are not required to do an annual audit by the IRS or any other governing body. Early-stage companies usually get audits when asked to by their investors, and as we’ve already mentioned, venture capitalists don’t usually start asking for an audit until a company is Series C or later.
Solid bookkeeping and legal record keeping will help make an audit smoother. The auditor will provide a list of materials, but in general this includes documentation like:
It’s important to note that auditors will usually - actually pretty much always - want to dig into supporting records. This will include payroll records, invoices, bank records, etc. They are looking to prove that the finances are as you say that they are, so make sure you are organized. For us at Kruze, we try to make sure we have all supporting documentation easily organized. It really helps in an audit, although our companies are more likely to need it due diligence when they get acquired by a major tech company.
The best way to prepare for a startup audit is to have diligent documentation process from the start. That means using Quickbooks Online, Bill.com, Expensify or a startup credit card with built in expense management, a high-quality-startup-focused payroll provider, and Box so that you can easily share reports and documents with your audit team. I also recommend setting up an “email@example.com” email box as soon as possible and cc’ing all accounting matters when corresponding with clients or vendors. That way both new accounting and finance staff and audit staff have an easily accessible audit trail…. And don’t need to bother you for more details!
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