Private Audit & Assurance

The requirement depends primarily on the total amount you plan to raise within any 12-month period. As the thresholds increase, the SEC demands a higher level of assurance on financial statements—ranging from unaudited to reviewed, and finally audited.

Example: A small startup aiming to raise $1 million might need reviewed statements, whereas a company exceeding certain SEC-specified caps (historically around $1.07 million, although these rules can be updated) may need audited financials.

Late or incomplete filings can result in regulatory warnings, investor dissatisfaction, and the potential for your offering to be withdrawn from a funding portal.

If the SEC finds material omissions, it may halt your crowdfunding campaign or require amended disclosures. This can damage your company’s credibility and delay your capital raise.

Takeaway: Working closely with a CPA firm familiar with Reg CF ensures financial statements are correct and timely.

Audits (under AICPA GAAS) provide the highest level of assurance on your financial statements. They’re typically needed when investors, lenders, or regulatory bodies require absolute confidence.

Reviews (SSARS engagements) provide limited assurance through analytical procedures and inquiries. They’re often sufficient for moderate lending requirements or smaller companies with a lower level of risk.

Example: A private manufacturer seeking a sizeable bank loan might need an audit to confirm inventory values and revenue recognition. A small consulting firm with minimal debt might only need a review.

1. Organize Documentation: Gather bank statements, vendor invoices, payroll data, etc.

2. Assess Internal Controls: While not as formal as public companies, having checks and balances (e.g., segregation of duties) can reduce errors.

3. Address Complex Areas: Examples include revenue recognition (ASC 606) or new lease accounting rules (ASC 842).

Proper planning reduces audit costs and speeds up fieldwork.

Franchisors are typically required to include audited financial statements in their Franchise Disclosure Documents (FDDs) under federal and state regulations.

Potential franchisees rely on these statements to gauge the franchisor’s financial stability and long-term viability.

Example: A restaurant franchisor must accurately report its initial franchise fees, royalty streams, and cost structures so prospective franchisees understand the system’s profitability.

Non-profits receiving federal funding above certain thresholds (currently $750,000 in federal awards) must undergo a Single Audit under Uniform Guidance (2 CFR Part 200).

Some states require audits if annual revenues exceed a statutory limit. Grantors, donors, or boards may also mandate audits for accountability.

Example: A non-profit with $1 million in federal grants must submit audited financials and a Single Audit report to maintain compliance.

ASC 958 details accounting and disclosure for net assets (with donor restrictions vs. without donor restrictions), functional expense allocations, and program service revenues.

Non-profits must also disclose fundraising costs, grant expenditures, and significant donor contributions.

Compilation: The CPA compiles financial data into GAAP-formatted statements but provides no assurance on their accuracy.

Review: Offers limited assurance, with the CPA performing analytical procedures and inquiries.

Audit: Highest level of assurance, requiring detailed testing of records, internal controls, and risk assessment.

Example: A small business might request a Compilation solely to present basic financial info to a less demanding creditor.

It depends on the lender’s or investor’s requirements. Some banks or investors require at least a Review or an Audit.

A Compilation may suffice for routine credit lines or internal management use, but it offers no assurance—so external parties who demand greater reliability often request higher-level engagements.

Verification Letters (sometimes called comfort letters or income verification letters) are typically requested by lenders, landlords, or other third parties to confirm specific financial information—such as income, net worth, or employment status—based on a CPA’s review of tax returns or financial records.

Example: A high-net-worth individual might need an income verification letter to secure a high-limit mortgage.

1. Underestimating Filing Deadlines and Regulatory Complexity: Failing to budget enough time and resources for timely filings.

2. Weak Internal Controls: Leading to inaccurate financials or material weaknesses flagged by auditors.

3. Inadequate Disclosure: Omitting key risk factors, related-party transactions, or other crucial data in offering documents or periodic reports.

Example: A newly public biotech firm might not properly disclose R&D milestones, leading to SEC comments or investor concerns.