TL;DR
- A clean audit starts six months before fieldwork — bank rec discipline, accrual policy documentation, and a working PBC (provided-by-client) list.
- Auditors will test internal controls, revenue recognition (ASC 606), and inventory/COGS — these three areas drive 80% of adjustments.
- Lender-required audits, investor due diligence, and ESOP valuations all use the audited financial statements as the foundation document.
- A Pleasanton CPA who has done audit preparation for similar Bay Area companies will save you 2-3x the fee in avoided fieldwork hours.
A financial statement audit isn’t inherently scary — but unprepared companies turn what should be a 3-week engagement into a 3-month ordeal of clarifying journal entries, rebuilding reconciliations, and explaining why account balances don’t tie. Here’s what Pleasanton companies should do to prepare.
Start Six Months Before Fieldwork
The audit preparation timeline starts roughly six months before year-end. Confirm your auditor’s engagement letter, clarify the audit standard (GAAP, GAAS), and request the prior-year PBC list as a baseline. By month four, complete bank reconciliations for all accounts and document any reconciling items lingering past 60 days.
The Three Audit Areas That Drive 80% of Adjustments
Auditors test everything, but adjustments cluster around three areas. (1) Revenue recognition under ASC 606 — particularly for SaaS/subscription, project-based services, and multi-element arrangements. (2) Inventory and COGS — physical count procedures, cutoff testing, and obsolete inventory write-downs. (3) Accruals and estimates — bonuses, vacation, warranty, and bad-debt reserves. Get these three right before fieldwork starts.
Build a Working PBC List
The Provided-By-Client (PBC) list is the auditor’s document request. The prior-year list is your starting template. Add columns for status, responsible person, and target date. The most common audit delay: a CFO who batches all PBC requests to the first week of fieldwork instead of providing them rolling-basis from the kickoff meeting.
Internal Control Documentation
Even for non-public companies, auditors will walk through the order-to-cash, procure-to-pay, and payroll cycles. Document who initiates, approves, and records each transaction. Segregation of duties matters even at 10-employee companies. If the CFO is also the AP approver and the bank rec preparer, expect an internal control deficiency memo.
Frequently Asked Questions
How long does a typical audit take?
For a $5M-$50M company, fieldwork is typically 2-4 weeks, with sign-off within 60-90 days of year-end if preparation is clean. Poorly prepared audits stretch to 4-6 months.
What does audit preparation typically cost?
CPA-led audit preparation for a $10M company typically runs $5K-$15K depending on complexity — paid back many times over in avoided auditor hours, faster sign-off, and a cleaner audit report.
Do we need an audit if our lender requires “reviewed” financials?
No — a review is a less-intensive engagement. Many SBA loans, lines of credit, and minority investors accept a review or compilation. Confirm what your specific stakeholder requires.
Ready to Talk?
If you have a financial statement audit coming up and want it to be the cleanest one yet — Schedule a 30-minute consultation with a Pleasanton CPA who works with clients in your situation every week.
Written by the Milestone Team
Ronak Bhatt, CPA, MBA
Founder · Milestone Certified Public Accountants · Pleasanton, CA
This article is for general information and does not constitute tax, legal, or investment advice. Individual situations vary; please consult a CPA before making tax elections. Milestone CPAs is licensed in California and serves clients across the Bay Area and Tri-Valley.
