Sponsored Content – In Partnership with Grassi
Unlike private companies that may or may not need an annual audit of their financial statements for compliance or stakeholder purposes, all public companies do – and not just any audit. It must be conducted under the specific rules and regulations of the Public Company Accounting Oversight Board (PCAOB).
Many companies looking to go public have never been audited before. And if they were, the audit probably adhered to Generally Accepted Auditing Standards (GAAS), which are not accepted by the SEC. The differences between PCAOB and GAAS audits mainly lie in the auditor independence standards, level of regulatory scrutiny, and scope of details that the auditor’s opinion must address. An objective engagement quality review partner, separate from the engagement team, must also review and sign off on PCAOB audit results.
While CPA firms that audit private companies face periodic peer reviews, PCAOB-registered auditors face more heightened and frequent scrutiny. A PCAOB inspection is a rigorous inspection and public reporting of the audit results.
A PCAOB audit is required before a company can file with the SEC. If a private company has never been audited, it must provide PCAOB audits for at least the past two years. This additional work should be factored into the audit engagement timing relative to the target IPO timeline.
An audit can take anywhere from six weeks to several months, depending on the level of complexity and preparedness, but a company looking to go public should start the process much sooner. Leave enough time to get your company audit-ready with the help of a qualified CPA and public company reporting consultant.
A private company should ensure it has adequate internal resources to support the PCAOB audit process, which requires demanding engagement from accounting staff. This internal support should be maintained to meet the heavy reporting burden that comes with being a public company.
Certain financial data not required in private company audits must be compiled, including source documentation, evaluation of complex accounting transactions and technical accounting memorandums. One example is a capitalization (cap) table, a complex spreadsheet detailing all equity transactions, ownership stakes, types of shares and option pools.
The CPA will lead the audit process and serve as part of a larger team of advisors, including an investment banker and attorney, who will help your company manage and meet the many requirements of the SEC filing, IPO process and exchange listing.
Going public is not the only reason a private company would want a PCAOB audit. Another factor could be to make the company more attractive to potential public company buyers. Whatever the reason, it will be an adjustment for the company’s accounting staff. Reach out early and often to a PCAOB-registered audit firm that can guide you through the audit process and work collaboratively with your advisory team.
Grassi is an experienced PCAOB audit provider and ready to help your business. Contact us today to learn more about our SEC Accounting Services.