The months before a funding round are not the right time to discover your books have problems. By then, fixing them is rushed, expensive, and visible to investors reviewing your financials. Here is what audit-ready accounting actually means and how to know whether you have it.
Audit-ready does not just mean your numbers add up. It means your financial statements are prepared in accordance with GAAP, your policies are documented and consistently applied, and an independent third party could verify every significant balance with supporting evidence.
Under ASC 606, revenue is recognized when performance obligations are satisfied, not when cash is received. For SaaS companies, this usually means recognizing subscription revenue ratably over the contract period.
Red flag: Recording cash received as revenue regardless of when the service is delivered. This is one of the most common issues in early-stage company books and one of the first things an auditor will flag.
If customers pay in advance, that cash is a liability on your balance sheet until the service is delivered. Many early companies book it directly to revenue, which overstates current-period earnings and creates a cleanup project before any audit or diligence process.
Stock option grants require a fair value calculation and an ongoing expense recorded each period as options vest. This requires a 409A valuation and consistent tracking of grants, vesting schedules, and expirations. Investors will ask about this directly.
Audit-ready companies have a documented month-end close that produces financial statements within a reasonable time after period end, typically five to ten business days. If your books take three weeks to close each month, that is a signal of process problems an auditor will find quickly.
Every significant journal entry should have support. Every account balance should be reconcilable to source documents. The cleaner your supporting documentation, the faster and cheaper the audit process.
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