Don’t Know Where to Start With Audit Prep? Ask These 3 Questions First

Executive Summary 

Facing an external audit with a small finance team? You’re not alone. 

For late-stage startups, financial audit preparation isn’t just a routine; it’s a high-stakes test of your financial systems, team readiness, and internal controls. That’s why we’re not offering another checklist. Instead, here are three foundational financial audit preparation tips designed to help you assess audit readiness with clarity and confidence.

Zeroed-In Consulting helps high-growth startups tackle these moments with speed and technical precision. If you're gearing up for your first audit or prepping for Series B/C funding, these financial audit preparation tips are your roadmap.

Need a gut-check? Start with ourAudit Readiness Assessment.

1. What Do Your Financials Say About Your Story?

• By focusing on accurate revenue classification, especially distinguishing between software licenses and SaaS models, companies can ensure compliance with ASC 606 - Revenue Recognition.  

• Additionally, complex equity structures, convertible debt, and non-cash employee compensation require precise accounting to meet audit standards.  

• With potential updates to the criteria for capitalizing software development costs on the horizon, tech companies must stay updated to navigate upcoming changes effectively. 

This overview provides actionable insights for tech companies to enhance their financial readiness, mitigate audit risks, and strengthen investor confidence in their financial statements. 

GAAP-compliant financials don’t just check a box. They tell investors and auditors who you are, how you operate, and whether you’re ready to scale.

a. Are your revenue and expense recognitions US GAAP-compliant?

Late-stage SaaS startups often stumble on revenue recognition under ASC 606. Contracts get complicated fast, especially with usage-based pricing, bundled deliverables, or deferred revenue structures. It also doesn’t help that revenue recognition under ASC 606 is always evolving, creating a moving target. Learn more about SaaS revenue recognition here.

Common pitfalls include:

• Improperly allocating revenue across performance obligations

• Recognizing revenue before it’s earned (or delaying it too long)

• Misclassifying implementation fees or variable consideration

Mistakes here can slow down audits or trigger restatements. If you haven’t documented your accounting policies, or if you’re still running cash basis, now’s the time to fix it.

b. Are your statements telling a consistent, mature story?

Auditors and investors don’t just look at your numbers. They look for maturity. 

As Kyle Geers, Technical Accountant at Zeroed-In Consulting, puts it:

“Audit readiness is more than a checklist. It’s a reflection of your company’s maturity and your leadership”.

Discrepancies across your income statement, balance sheet, and cash flow can raise red flags. If you’re using spreadsheets and duct tape to close the books, you’re not alone, but that won’t cut it anymore.

New standards are stricter. Audits are faster-paced. Boards want cleaner answers. 

Investors want to see:

• Cohesive financial storytelling

• Clear documentation of your accounting positions

• Repeatable close processes that show maturity 

Check out focus areas for financial statement audit preparation

c. How outsourced experts refine your narrative

Even if your internal team is strong, audit prep requires a different muscle. Zeroed-In often steps in when companies are struggling to keep up with the daily tasks in addition to the audit prep, transforming messy books into audit-ready statements in under 60 days.

Whether it’s preparing technical memos, aligning your story across reports, or bridging the gap with your auditors, outsourced experts help you tell a story that builds trust.

2. Are You Tracking the Right Risk Areas Early Enough?

Most startups don’t realize they’re behind until it’s too late. Proactive risk mapping is one of the most overlooked financial audit preparation tips, yet it’s crucial for staying ahead.

a. How mature is your audit prep process?

The earlier you build structure, the less painful audit prep becomes. A strong internal process includes:

• A living audit readiness checklist

• Documented policies for revenue, leases, and equity

• Consistent reconciliation and close cadences

Startups that skip these often face compressed timelines, missed deadlines, or audit fees that double year over year.

b. Common red flags in SaaS startups

Risk hot zones we see most often:

• Leases (ASC 842): Many companies haven’t reviewed lease contracts or embedded lease terms.

• Stock compensation (ASC 718): Options, RSUs, and ESPPs need airtight documentation, and investors will ask.

• Equity arrangements: Convertible notes and SAFE agreements can trigger complex accounting treatments.

Audit prep gets expensive fast when these aren’t flagged early. See common audit pitfalls for startups.

c. What warning signs are you ignoring?

Red flags we hear all the time:

• “We just need to reconcile one last thing…”

• “We’ll draft the memos next week…”

• “We think our revenue policy is good enough…”

These signs usually mean you're headed toward fire drills, not clean audits.

3. Who’s Owning the Audit Timeline, and How?

Lack of clear ownership is the #1 reason audits derail.

a. Why “we’ll figure it out later” is the most expensive plan

Delaying audit prep compresses the timeline, overwhelms your team, and signals chaos to investors.

• Audit fees spike when auditors face incomplete support (see how interim testing reduces costs)

• Valuations suffer when confidence in your numbers erodes

• Funding delays can kill momentum

b. The case for early outsourced support

Fractional controllers or technical accounting partners prevent audit fire drills by:

• Managing the audit timeline and request lists

• Drafting memos aligned to audit standards

• Freeing up your team for the work only they can do

Learn why fractional controllers beat full-time hires.

Zeroed-In works like an extension of your team, hands-on, fast-moving, and auditor-fluent.

c. Checklist: What a 60-Day Audit Prep Timeline Should Include

• Assign owner(s) for all audit deliverables

• Draft technical memos (ASC 606, 842, 718)

• Reconcile all material balance sheet accounts

• Prepare supporting schedules

• QA the financial statements

• Communicate deadlines with audit firm

• Confirm completeness of prior-year support

• Review draft financials with internal and external stakeholders

Audit prep isn’t about scrambling through a checklist. It’s about strategy, ownership, and telling a story your investors and auditors can trust.

Ask yourself these three questions early and answer them honestly. Then take the next step.

FAQs 

What are signs a startup is not ready for an audit?

• No US GAAP adjustments have been made

• Revenue policies are undocumented

• Last-minute reconciliations are common

• Technical memos are missing or outdated

• Support for prior-year balances is hard to locate

• There’s no audit timeline or clear point of contact

How early should we bring in outsourced accounting support?

Ideally, 90–120 days before your target audit date. This gives time to:

• Draft memos

• Review books

• Address issues proactively

Bringing in support too late often leads to compressed timelines and higher costs.

What’s the risk of audit delays for late-stage startups?

• Increased audit fees (due to scope creep)

• Funding delays or term sheet renegotiations

• Lost investor confidence

• Missed board or lender deadlines