The reporting gap
Most private companies keep accounts that are adequate for management and tax. Public markets require something different: financial statements prepared under a recognised accounting framework, audited by a qualified firm, and published to a fixed timetable with management accountable for their accuracy.
The distance between the two is usually greater than management expects, and the direction of travel is not always favourable.
Where the numbers change
Revenue recognition. The most common source of restatement. Multi-year contracts, upfront fees, usage-based pricing and bundled services all have specific treatment. Cash received in January for a twelve-month contract is not January revenue.
Capitalised development costs. Companies often capitalise software or product development on the basis of internal policy. Auditors apply strict criteria, and costs that fail those criteria move to the income statement — reducing both reported assets and reported profit.
Share-based payments. Options and share awards carry an expense that many private companies never record. Recognising it can turn a reported profit into a reported loss without any change to cash.
Leases. Under IFRS most leases appear on the balance sheet as an asset and a liability, changing reported debt and reported earnings.
Related-party transactions. These must be identified, disclosed and, where not at market terms, adjusted.
How long an audit takes
For a company that has never been audited, expect six to twelve months for the first audit covering the required prior periods. The timeline is driven less by the auditor's work than by the company's ability to produce supporting evidence for historical transactions — contracts, invoices, bank records and board approvals, in some cases for periods three years past.
Companies that have retained records systematically move quickly. Companies reconstructing history from email archives do not.
Choosing an auditor
The auditor must be qualified and registered to report on a public company in the relevant jurisdiction. Not every firm is, and a company's existing accountant frequently is not.
Independence rules also apply: a firm that has been preparing your accounts generally cannot audit them. Many companies therefore need both a new auditor and continued support from their existing accountant in a separate capacity.
Internal controls
Public companies must maintain controls sufficient to support the accuracy of reported figures. For a smaller issuer this rarely means a large finance function, but it does mean documented processes: how revenue is recorded, who approves expenditure, how the bank is reconciled, and how the accounts are closed each period.
Where one person performs every finance function, segregation of duties becomes an audit finding. It is generally addressed through a combination of documented approval, board oversight and outside support.
The quarterly reality
After a transaction, the company reports on a fixed schedule regardless of what is happening operationally. Quarterly results are published within a set number of days of period end, every period, permanently.
Businesses with lumpy revenue — project-based, contract-driven, seasonal — should model in advance how their results will read quarter by quarter, and prepare to explain the pattern. Investors dislike surprises far more than they dislike volatility that has been explained in advance.
Budgeting for the function
Ongoing public-company finance costs typically include the annual audit, quarterly review procedures, filing and regulatory fees, transfer agent services, and additional internal or outsourced finance capacity. These are recurring costs that begin at the transaction and continue for as long as the company remains public. They should appear in the financial model before the decision is taken, not after.