Preparing for Statutory Audit: A Complete CFO Checklist

What Is a Statutory Audit?

A statutory audit is a compulsory evaluation of a company’s financial statements designed to verify adherence to U.S. GAAP, regulatory requirements, and internal control measures.

In the U.S., statutory audits apply primarily to:

Public companies (SEC-mandated)
Large private companies (loan covenants, company’s requirements)
PE/VC-backed companies

A statutory audit covers:

✔ Financial statements

✔ Internal controls (ICFR)

✔ Revenue recognition accuracy

✔ Asset valuation

✔ Compliance with ASC standards

✔ Notes disclosures

Why Audit Readiness Matters More in 2025

Increased adoption of ASC 842, ASC 606, and ASC 805 is causing more audit adjustments.
External auditors now require stronger control documentation due to PCAOB pressure.
Many companies struggle with cut-off, accruals, lease accounting, and fair value measurements.
Remote and hybrid environments have weakened evidence trails.

Proactive preparation reduces audit fees, avoids delays, and strengthens reporting quality.

CFO Audit-Readiness Checklist

1. Start with a Clean, Accurate, and Timely Close

A statutory audit cannot progress smoothly unless the books are closed accurately.

CFOs should ensure that month-end and year-end activities are completed before auditors arrive.

Key actions:

Reconcile all key accounts (cash, AR, AP, inventory, payroll, prepaid, and deferred revenue).
Validate revenue and expense cut-offs.
Post all accruals and adjustments.
Ensure all journal entries are documented and approved.

A disciplined close process creates a solid foundation for the entire audit.

2. Prepare a Complete and Organized PBC (Provided-By-Client) List

The PBC package is the auditor’s roadmap. A well-prepared PBC significantly reduces follow-up questions and delays.

Must-have PBC schedules:

Trial balance and general ledger
AR & AP aging
Bank reconciliations
Fixed asset register
Inventory schedules
Deferred revenue roll-forward
Lease schedules (ASC 842)
Revenue schedules (ASC 606)

Organize files logically, use consistent naming, and ensure each file ties back to the general ledger.

3. Strengthen Internal Controls & Document Core Processes

Auditors assess not only the numbers but also the strength of internal controls.

CFOs must ensure processes are documented, executed, and evidenced.

Controls to validate:

Segregation of duties
Approval workflows
Access controls and system permissions
Journal entry reviews
Revenue cycle controls (contract approval → billing → cash)
Purchase cycle controls (vendor approval → invoice → payment)

Documenting these controls reduces audit risk and supports compliance.

4. Review GAAP Compliance for High-Risk Standards

Most audit adjustments arise from incorrect application of accounting standards. Finance teams should pre-audit their compliance with:

ASC 606 – Revenue Recognition

Identify performance obligations
Verify SSP
Reconcile deferred revenue
Document cut-off logic

ASC 842 – Lease Accounting

Confirm the completeness of the lease population
Review ROU asset amortization and lease liability schedules

ASC 820 – Fair Value

Document valuation methodologies
Validate assumptions and inputs

ASC 805 – Business Combinations

(if relevant)

Confirm the valuation of acquired intangibles and goodwill
Proactively addressing GAAP compliance prevents last-minute adjustments.

5. Support All Estimates & Management Judgments

Estimates involve subjectivity, making them a top audit risk area.
CFOs must ensure every estimate is supported by robust documentation.

Typical estimates include:

Bad debt reserve
Inventory write-downs
Useful life of fixed assets
Accrued liabilities
Stock-based compensation valuation (409A)
Goodwill impairment
Fair value of investments

For each estimate, document:

Methodology
Assumptions
Source data
Sensitivity analysis (if applicable)

6. Validate Tax Provisions and ASC 740 Compliance

Tax-related findings are common in U.S. audits.

CFOs must align tax schedules with financial statements.

Prepare and validate:

Federal & state income tax provisions
Current vs deferred tax reconciliation
Sales tax nexus analysis
R&D tax credit documentation
Transfer pricing reports for cross-border activities
Uncertain tax positions (UTPs)

Accurate ASC 740 documentation saves significant audit time.

7. Organize Contracts & Key Agreements for Audit Testing

Auditors rely heavily on contracts to verify the accuracy of balances.

Ensure the following are organized and accessible:

Customer agreements
Vendor contracts
Loan and credit agreements
Lease agreements
Equity award documents (stock options, RSUs, SAFEs)
Board meeting minutes
Acquisition documents

This helps auditors validate revenue, expenses, leases, debt, and equity entries.

8. Prepare Walkthroughs for Critical Business Processes

Walkthroughs help auditors understand how transactions move through the system.

CFOs should prepare narrative and visual documentation for:

Order-to-Cash (O2C)
Procure-to-Pay (P2P)
Record-to-Report (R2R)
Payroll (Hire-to-Retire)
Inventory cycle
Financial close

Each walkthrough should clearly show the control owner, control activity, approval flow, and supporting evidence.

9. Conduct a Pre-Audit Internal Review

Before auditors arrive, CFOs should conduct a thorough internal review to catch issues early.

Review checklist:

Unusual or large JEs
Old or unexplained reconciling items
Negative or stale balances
Unsupported accruals
Missing or incomplete documentation
Aging schedules that don’t reconcile
Intercompany discrepancies
Revenue inconsistencies

This step dramatically reduces audit adjustments.

10. Align Early with Auditors and Establish a Clear Communication Plan

A well-aligned kickoff prevents misunderstandings and sets expectations.

Discussion points for the kickoff meeting:

High-risk areas
PBC deadlines
Testing approach
Interim vs year-end fieldwork
Communication cadence
Key accounting judgments requiring early discussion

A collaborative relationship with the audit team creates a smoother process for both sides.

Benefits of Following a Statutory Audit Checklist

Ensures compliance: A statutory audit checklist helps companies systematically verify adherence to applicable laws, regulations, and accounting standards.
Reduces risk of omissions: Using a statutory audit checklist minimizes the chance of missing critical audit procedures or documentation requirements.
Improves audit efficiency: Standardized checklist items streamline the audit process, saving auditors and management alike time.
Enhances consistency: A statutory audit checklist promotes uniform application of audit procedures across periods and different audit teams.
Facilitates better planning: The checklist provides a clear framework for scoping the audit, allocating resources, and setting timelines.
Supports evidence collection: It guides auditors in gathering and retaining the required working papers and supporting documents for each audit area.
Strengthens internal controls: Regular use of a statutory audit checklist helps identify control weaknesses and areas for remediation.
Improves stakeholder confidence: Demonstrating that audits follow a statutory audit checklist enhances credibility with regulators, investors, and lenders.
Aids regulatory readiness: Companies prepared with a statutory audit checklist can respond more quickly and accurately to regulatory inquiries and inspections.
Helps track remediation: Companies can use the statutory audit checklist to monitor completion of audit findings and corrective actions.

Get Statutory Audit–Ready with Knowcraft Analytics

Prepare for your statutory audit with confidence. Knowcraft Analytics helps CFOs ensure U.S. GAAP compliance, clean PBCs, strong internal controls, and fewer audit adjustments—before auditors arrive.

Schedule a Statutory Audit Readiness Consultation