While strategic and operational initiatives are top priority for private equity owners and their portfolio management teams after an acquisition closes, the clock is ticking toward that inevitable first year audit. Use a proactive and strategic approach to help drive an efficient audit process that may reduce cost, support management, and encourage timely reporting to investors and lenders. Watch for the following obstacles when preparing for a first year audit and learn how you can avoid them.
1. Lack of Priority and Urgency
In this instance, the audit is viewed as a commodity that does not add value. The audit may not be a priority for the strategic decision makers, but it's required by a third party.
2. Lack of Communication
Often new owners, portfolio company management, the audit team, the quality of earnings team, and other third-party service providers lack communication throughout the audit process.
3. Lack of Understanding of First Year Audit Complexities
Your organization may have been audited pre-acquisition, but the first year after a change in control adds complexities.
Identify an audit readiness team, assign tasks at the beginning of the engagement to hold each party accountable, and assign each audit request or action item to a management team member.
Develop a plan early, new owners should lay out a timeline for management and the audit team ahead of the engagement. Schedule regular status calls to hold all parties accountable.
Stagger significant audit areas, complete work throughout the year at a reasonable pace to help reduce the burden on management.
Credit: Tyler Lounsbery and Adrian Nohr for claconnect.com (September, 2020)
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