How to tackle your first external audit, before it tackles you.

Kelly Hicks and Robin Sharma share advice after Airbase successfully completes its first external audit.

Few milestones in a company’s lifecycle demand a more focused response from finance and accounting than the first external audit. As Airbase recently secured its first, we were curious about the experience and caught up with our frontline players for some insights. Kelly Hicks, Controller at Airbase, and Robin Sharma, Senior Manager of Accounting at Airbase, generously shared some time with us and shed light on navigating the first external audit successfully — and efficiently.

The lead-up: Choosing auditors and timing.

One of the most pressing questions surrounding a company’s first external audit is “when should we do it?” Kelly and Robin echoed each other in saying this varies from company to company, and can depend on various factors. Namely, your aspirations and your industry.

When is the right time for a company’s first audit?

“Investors or banks may require an audit as you grow. When you audit depends on what’s happening in the company, and its life cycle.

“As a company that handles our customer’s money, Airbase wanted an audit to show our compliance and diligence.”

“It depends on your aspirations, growth, and where the company is headed. Whether you aspire to go public, or whether a merger or acquisition is happening — these are things to consider.

“A 10-year audit is way more strenuous than a 3-year audit. If there is the likelihood of an audit in the future, prepare for it sooner rather than later.”

How long did you know about the audit before it started, and how much time should it take?

“Six months beforehand, which was enough time. An audit without proper preparation is painful and inefficient for all parties. You need three to six months, with good cadence, controls, processes, and confidence in the numbers.

“Our audit started in August and finished in December. That felt about right for a first external audit. The audit probably took about 25% of my time personally — maybe even more once the auditors arrived.”

What types of auditors are there, and how do you choose one?

When your company does agree an audit should happen, there are still many decisions to be made. How do you decide what auditor to choose? Have you thought about what type of audit you need? Kelly shared guidance on how to approach those questions.

“A really reputable firm — one of the Big Four — may be the right choice if you aspire to go public. It also comes with brand recognition if you need to share your audited financial statements externally as a private company.

“There are good firms outside of the Big Four that may be more flexible in pricing, timing of fieldwork, or ability to offer more advisory functions throughout the process.”

Are there any other significant considerations beyond the type of audit or the auditors you choose?

“Timing. At certain times of the year, the Big Four are busy with public companies and less available for private companies. Also, regarding your team — are they ready?”

Preparation time.

If there’s one thing an audit requires plenty of, it’s preparation. That being said, an audit will involve a slew of unexpected and unforeseeable questions.

So, what do you actually do to prepare before the audit begins?

“The auditors will ask about processes and controls. You need documentation around everything — it’s helpful to have that pulled together before you begin.

“Cleaning up your technical accounting data in preparation for your audit will make your life easier. A consultant could help with some of that preparation and financial review.”

What challenges did you encounter when preparing for this audit that you’ve learned from?

“The biggest challenge was not the creation of procedures or processes, but the curation of them. Even with the documentation we prepared, the auditors may have wanted to see it differently. 

“We had all the information, of course, but did we have it in the right place at the right time? Certain things they asked for meant we had to scurry.”

A step in between, and noting fintech-specific challenges…

“You can align early on with your auditors with regard the critical areas they will dive into. Knowing this, you can plan and prepare accordingly — knowing what to focus on first.

“Revenue is a key area for any company, but especially nuanced as a fintech company where interchange revenue is involved. We worked hard to get that right and present it correctly to our auditors.”

Clean up early.

While certain things are impossible to prepare for, some tasks should be done early. One of those is cleaning up your data and books. With modern AP tools and systems that automate reporting and booking, this shouldn’t be a heavy lift. 

“Ultimately, you will need your books cleaned up. It’s important to do that before the audit — the earlier, the better.”

How your systems and tools should be helping during your first audit.

In the age of the tech stack, we wanted to know what tools and systems Kelly, Robin, and their teams relied on for their first external audit. Their responses highlighted consolidation and tools that automate the audit trail as resoundingly valuable. These tools directly accelerated and made their audit easier, and, most importantly, saved them precious time. 

Was there any system that you were really glad you had implemented before your audit?

“Airbase itself is a great tool throughout an audit. You get visibility into everything that’s getting posted to your GL. Every step, such as approvals, is built in. I’ve mentioned documenting processes but, with Airbase, they’re all right there alongside all documentation, invoices, and receipts. Even with a small team, you have lots of controls in place and comfort in your numbers — that means the auditors will too.”

How valuable are systems and tools that centralize financial data?

“Beyond valuable. The fewer systems you have, the better — having all of our data in a consolidated system was very, very important in escalating the audit. In our case, NetSuite is the source of truth.” 

How valuable are tools that actively support compliance and create an audit trail, especially in prep for your first external audit?

“Super important and valuable. Auditors will ask for an audit trail based on their sample selection and having a centralized tool that tracks the audit trail will make your first audit so much easier. Especially since auditors request invoices, approvals, receipts, and much more.”

The responsibility of a financial leader throughout an audit.

Though automated tools have created a new frontier for finance and accounting leaders and their teams, Kelly emphasized that you still need to think critically and enforce compliance when it comes to preparing for an audit.

“If you aren’t managing the risks in your own business, no auditor is really going to be able to help you.”

Advice for the accounting leaders.

Robin navigates the accounting in Airbase with a very lean team. Post-audit, she shares her advice for other accounting leaders taking position for their first external audit.

What advice would you offer to an accounting leader before their first audit?

“Ensure you have a bigger understanding of what’s happening in your company. We hired a consultant to help clean up some data and ensure we understood everything about the company, down to the transactional details.”

Regarding sharing data with external stakeholders, what advice would you offer to accounting leaders before their first external audit?

“Ensure efficient and compliant tools and processes. With the right systems, you can pull information easily and accurately and provide the exact, necessary information that is needed.”

Looking back, what would you do differently to prepare your team for their first external audit? Or alternatively, what went right?

“First off, I would prep the team for what is involved in an audit — down to how many hours you spend with the auditors. Secondly, I would provide more details on transaction references or journal entries booked. Looking back at old transactions, having proper documentation and transaction references makes the audit easier. Automation does this instantly and, during an audit, your team won’t have to go searching for answers.”

Automation as the key to a confident audit and how an audit can help confidence across the company.

When you automate AP processes, you extinguish human error, omissions, and many other data entry or organizational errors. When auditors arrive, you hand over data that you know is accurate and up to date.

Is automation valuable to your confidence in what you hand over to auditors?

“An automated system is very smart — as you can be certain there are no human errors and can access real-time data. In addition, automated systems have internal controls in place to help ensure the most accurate data.

“Instead of manually exporting and importing information, and maybe dropping one or two transactions or details, you can feel 100% confident in the data.”

Do you feel that the audit increased your level of comfort and confidence around processes? Was there some validation that came from having the audit signed off?

“From a fintech perspective, I’m glad we have alignment on certain metrics and are clear on the more nuanced part of our numbers. The audit also made us more comfortable in how we’re reporting. For some of our revenue processes, I’m glad that we now have them signed off by an auditor.

“People may do things differently, but if you can get through an audit as a team, it validates that your teams are working together successfully.”

Airbase is a spend management platform that provides full visibility and control over all non-payroll spend. Would you like to see what an innovative spend management platform can do for your company? Schedule a demo today.