{"id":7281,"date":"2020-06-30T20:39:14","date_gmt":"2020-06-30T20:39:14","guid":{"rendered":"http:\/\/www-staging.carta.com\/sg\/?p=7281"},"modified":"2021-03-05T06:54:48","modified_gmt":"2021-03-05T06:54:48","slug":"financial-audit-preparation","status":"publish","type":"post","link":"https:\/\/www-staging.carta.com\/sg\/blog\/financial-audit-preparation\/","title":{"rendered":"How to prepare your company for a financial audit"},"content":{"rendered":"

All companies are subject to financial audits, but why and when your company gets audited depends on its growth trajectory and finances. The Securities and Exchange Commission (SEC) requires public companies to submit quarterly and annual financial statements, and, depending\u00a0 on the particular circumstances, your own company\u2019s requirements may be more rigid. Private companies, on the other hand, aren\u2019t mandated by the SEC to conduct financial audits. However, many private companies elect to undergo regular audits to attract investors and lenders.<\/span><\/p>\n

You don\u2019t need to wait for a <\/span>fundraising<\/span><\/a> opportunity or for one of your investors to request an audit to prioritize audit preparation, though. Having a plan in place can help prevent bookkeeping errors <\/span>and<\/span><\/i> ensure your company is complying with accounting standards around stock-based compensation <\/span>reporting<\/span><\/a>, equity, and taxes.<\/span><\/p>\n

What is a financial audit?<\/span><\/h2>\n

A financial audit is an evaluation of your company\u2019s financial statements to assure investors, regulators, and other outside parties that your reported values are complete and accurate. If your company doesn\u2019t follow the rules, you may have to pay a penalty.<\/span><\/p>\n

There are three types of financial audits:<\/span><\/p>\n

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  1. IRS audits:<\/b> The IRS performs financial audits based on random selection, but they also examine businesses that have a record of suspicious financial reporting. According to the <\/span>IRS 2018 data book<\/span><\/a>, in 2018 the IRS audited roughly 0.9% of corporation tax returns filed in 2017.<\/span><\/li>\n
  2. Internal audits: <\/b>These are conducted by someone within the company.<\/span><\/li>\n
  3. Independent audits: <\/b>These are conducted by a third party, typically a CPA firm.<\/span><\/li>\n<\/ol>\n

    Depending on your company\u2019s financial goals and growth, you may want an independent audit to:<\/span><\/p>\n