Last reviewed October 7, 2026 · By the NYBACS advisory team
Short answer
Ideally before the first year that will be audited begins, and in practice no later than about six months before that year ends. The first audit covers a full fiscal year and requires evidence for the opening balance sheet, so records from the very first day of that year matter. Startups should begin as soon as a term sheet, loan agreement, grant or parent company signals that audited statements will be due.
Key takeaways
- The audited period is usually a full fiscal year, so preparation that starts after year-end can only fix records, not create evidence that was never kept.
- A first audit also requires evidence about opening balances, which can pull the prior year's records into scope.
- If inventory is material, the auditor normally needs to observe the physical count at or near year-end, which requires engaging the auditor before year-end.
- Investor rights agreements and loan covenants usually set a delivery deadline measured from year-end, which fixes the latest date the audit can finish.
- Engaging an audit firm early in the year gives access to scheduling slots before the busy season after December year-ends.
Work backward from the date the audited statements are due
Every audit timeline starts at the delivery deadline. If an investor rights agreement requires audited statements within 120 days of a December 31 year-end, the report must be issued by around the end of April. Working backward:
| Point in time | What should be in place |
|---|---|
| Start of the audited year | Accrual-basis bookkeeping, monthly close, documented revenue and equity records |
| 6–9 months before year-end | Readiness assessment; audit firm proposals requested and engaged |
| 3 months before year-end | Planning meeting with the auditor; PBC list received; interim procedures if the firm performs them |
| Year-end | Physical inventory count observed if relevant; cutoff documentation captured |
| 4–8 weeks after year-end | Books closed, schedules and lead sheets finished |
| Fieldwork to report | Auditor testing, adjustments, representation letter, report issued |
The compressed version (engaging an auditor in February for a December year-end) works for some companies but leaves no room for unexpected problems.
Trigger events that should start the clock
Most startups do not choose to be audited; something requires it. The signals to watch:
- A term sheet or investor rights agreement with an audited-financials clause, often in a priced round.
- Venture debt or a bank facility whose covenants require audited or reviewed statements.
- A federal grant or contract that could take federal expenditure toward the Single Audit threshold.
- A foreign parent's group audit that will bring the US subsidiary into scope.
- A planned acquisition or exit process in which buyers will expect audited history.
- A regulated license application, such as money transmission, where regulators commonly require audited statements.
When any of these appears, identify which fiscal year will be the first audited year, because preparation needs to cover that whole year.
Why the first audit is the hardest
In a first audit, the auditor must also be satisfied that the opening balances do not contain material misstatements that affect the current year. For a company that has never been audited, this can mean reviewing prior-year records, testing opening equity, receivables or fixed assets, or in some cases auditing the opening balance sheet.
Prior-year issues therefore become current-year problems: SAFEs recorded as equity, stock compensation never booked, revenue recognized on a cash basis. Fixing them during the audited year is far cheaper than discovering them during fieldwork. A short opening-balance review at the start of the audited year, covering equity, receivables, fixed assets and accrued liabilities, shows early whether earlier periods will need extra work.
Some evidence can only be gathered at the time
Certain audit evidence cannot be recreated after the fact:
- Inventory counts. Auditors generally attend the physical count; a count nobody observed is difficult to audit later.
- Cutoff records. Shipping logs, delivery confirmations and service activation dates around year-end must be kept as they happen.
- Board approvals. Consents dated after the event create questions about when a decision was actually made.
- Valuations. Option-grant valuations need to exist at or near the grant date, not be commissioned retrospectively.
Starting early means these are captured routinely rather than reconstructed.
A practical minimum for founders with little time
If a full readiness program is not realistic yet, three habits cover much of the ground: reconcile every bank and payment account monthly, store every signed contract and board consent in one indexed folder, and record revenue when earned rather than when paid. Combined with an audit firm engaged before year-end, these habits make a first audit manageable even for a small team.
Two further steps pay off quickly once an audit is likely. First, write down how revenue is recognized for each product or service, even in a few sentences, so the policy is applied consistently from the first audited month. Second, confirm the fiscal year-end with the board and investors before the audited year begins; changing it later can create a short period that also needs audit coverage.
Common mistakes to avoid
- Starting audit preparation after the year has ended and the deadline is already fixed.
- Engaging an auditor too late to observe a year-end inventory count.
- Assuming only the audited year matters and ignoring opening-balance issues from earlier years.
- Signing a financing agreement without identifying which fiscal year must be audited first.
- Commissioning option valuations or board consents retrospectively to fill gaps.
NYBACS 360° support
How NYBACS helps
- Builds a dated audit timeline working back from your investor, lender or parent-company deadline.
- Runs a readiness assessment early in the first audited year, including opening-balance risks from earlier years.
- Sets up the monthly close, document indexing and cutoff records that audits depend on.
- Helps you request and compare audit-firm proposals early enough to secure scheduling.
- Takes the books through year-end close and schedule preparation on the agreed timeline.
Frequently Asked Questions
Can we audit two years at once?
Yes, multi-year audits are possible and are sometimes required, for example before an acquisition. They cost more and take longer, and older years with weaker records may be hard to support.
Is it too early to prepare if we are pre-seed?
Full audit preparation is usually unnecessary at pre-seed, but clean accrual-basis books and organized equity records cost little to maintain and make any later audit, diligence or tax filing much easier.
When is audit busy season?
For December year-end companies, audit firms are typically busiest in the first four months of the year. Engaging before year-end improves the chance of getting the fieldwork dates you need.
Could a review be a stepping stone before a first audit?
It can help, because a review forces a clean year-end close and US GAAP statements. However, a review does not test opening balances in the way an audit does, so it is not a substitute for audit preparation.
