If you’re a startup, chances are at some point your investors have asked you to provide “Audited GAAP Financials” for your next fundraising event. However, few investors truly understand the cost and time involved in providing Audited GAAP Financials. In another article, we discuss the nuances of GAAP vs nonGAAP financials, but in this article we wanted to tackle the nuances of Audited Financials.
First things first. There are actually three degrees of “Audited” financial statements: a Compilation, a Review, and a full Audit, which increase in scope, time and cost as you move upward, Here are some of the basics that distinguish the differences between these types of reporting:
Compilation | Review | Audit | |
|---|---|---|---|
Overview | A compilation report establishes that a CPA has compiled the financial statements. It does not attest to accuracy or completeness of financials, which is the responsibility of the management team. | A review report establishes that a CPA has reviewed and analyzed the financial statements for topical cohesion. It does not attest to accuracy or completeness of financials, which is the responsibility of the management team. | An audit report establishes that a CPA has investigated 1) the completeness and accuracy of key account balances through independent analytical procedures, 2) internal controls and opportunities for fraud and misstatement of financial performance, and 3) provides “reasonable assurance” that the financial statements are free from a material misstatement |
Time | 3 Business Days | 2 Business Weeks | 3+ Months |
Cost | $500+ per year attested | $2,000+ per year attested | $20,000+ per year attested |
Who Can Perform the Work | a CPA (Kruze can recommend one) | Independent CPA (Kruze can recommend one) | Independent CPA, accredited for Audit |
Key Factors | Does attest to accuracy or completeness of financials | ||
Typically Requested by | Landlords | Banks/Lenders | Series B+ Investors |
Report Generated | 1 Coverpage | 3-5 Pages of Reporting | 50+ Pages of Reporting |
Scope | Cursory | Topical | In Depth |
|---|---|---|---|
• Examine the general business model | • Perform Analytical/Variance Analysis | • All Previous Procedures | |
• Provides confidence of a CPA working relationship | • Review Accounting Principles Used | • Investigate Inventory, AR, and AP balances with Clients/Vendors | |
• Relies solely on information as presented | • Review Schedules for Accuracy and Completion | • Investigates and reports on Internal Controls |
For a more detailed report on all that goes into the various types of attestation, check out this AICPA guide. Also keep in mind that this is just a basic and high-level overview of the 3 types of reports that a CPA can get you.
One other important thing - a non-CPA can’t really give you any real “report.” So, while it’s fine to get anyone off the street (or some supposedly automated software) to try to put together your books, only a credentialed, CPA can provide a Compilation Report, a Review or an Audit that will have any legitimacy in the eyes of an investor, bank or acquiror.
Vanessa Kruze, a seasoned CPA, has an impressive track record prior to establishing Kruze Consulting. Her experience includes pivotal roles at Deloitte Tax and as a controller for a substantial startup with over 120 employees and $20 million in revenue. Under her leadership, Kruze Consulting has emerged as a distinguished CPA firm, recognized on the Inc 5000 list for five consecutive years, illustrating rapid growth and success in the competitive accounting landscape. Vanessa's unique approach, combining deep industry knowledge with advanced automation and software solutions, has positioned her firm as a leader in providing comprehensive accounting services to startups across the United States.
