This checklist outlines key activities finance leadership teams should consider before calendar year-end to position the organization for an efficient and “no surprises” external audit.
1. Align on Audit Scope, Risks, and Timeline
- Hold a formal pre–year-end planning meeting with external audit and key finance/IT leaders to align on materiality, scoping, and key risk areas (e.g. estimates (including those that may not have presented a risk of material misstatement in the prior year, but now do), significant non-recurring transactions, impairment(s), IT, cyber, etc.).
- Lock the audit timetable, including hard close date(s), interim/subsidiary close dates, inventory observations, and key reporting milestones (audit committee, board, and filing deadlines).
- Finalize the Prepared by Client (PBC) list, including owners, due dates, and expectations for population vs. sample support and data transfer protocols.
- Agree with auditor on the timing of key audit areas, including expected completion dates (including required workpaper reviews).
- Ensure that the status of interim audit procedures is fully understood (inclusive of required workpaper reviews) and prioritize completion of pending interim procedures, preferably before year end audit procedures commence.
2. Close Calendar and Core Accounting Records
- Finalize the year-end close calendar with clear responsibilities for subledger close, consolidations, management reporting, and external reporting.
- Clean up core accounts before year-end: bank, AR, AP, inventory, accrued liabilities, deferred revenue, payroll, and bonus accruals.
- Resolve intercompany mismatches (including FX and transfer-pricing effects) and confirm elimination entries are correct and repeatable.
- Ensure manual journal entries are appropriately reviewed, including post-close, top-side, and unusual entries, and ensure approvals and documentation are complete. Click here for additional information regarding internal controls related to manual journal entries.
- Ensure that all significant accounting and disclosure judgments are supported by contemporaneous, management-owned documentation.
- Refresh materials for the audit committee and board to reflect new regulatory and risk topics (cybersecurity, AI in finance, ESG, regulatory changes).
3. Significant Transactions and Technical Accounting
- Take inventory of all non-routine activity during the year (e.g. acquisitions/dispositions, asset sales, restructurings, significant revenue and lease contracts, debt/equity transactions, new/modified share-based awards, major IT implementations).
- Prepare or update technical accounting memos for each significant transaction.
- For business combinations, ensure acquirer identification, purchase price allocation, intangible recognition, contingent consideration, and pro forma requirements are clearly documented. Also critically evaluate projected financial information and valuation assumptions that could have a material impact on purchase price allocation and document this evaluation. Click here for additional information regarding accounting for business combinations. Also, if you have a business combination involving a variable interest entity (VIE), ensure you consider Accounting Standards Update (ASU) 2025-03, VIE Equity Acquisitions – Who is the Accounting Acquirer? Click here for additional information regarding ASU 2025-03.
- For significant revenue contracts, consider identification of performance obligations, treatment of variable consideration, contract modifications, principal vs. agent, standalone selling price, and measure of progress (particularly when estimates are involved). If you have revenue contracts that include stock-based compensation, ensure you consider recent guidance in ASU 2025-04, Stock Comp in Contracts with Customers. Click here for additional information regarding ASU 2025-04.
4. Estimates, Models, and Judgmental Areas
- Refresh all significant estimates and supporting documentation (credit losses, inventory and warranty reserves, bonus and variable compensation, customer rebates and returns, income tax-related and legal/contingent liabilities).
- Perform goodwill and long-lived asset impairment assessments where required; align assumptions with budgets, strategic plans, and board materials. Click here for additional information regarding goodwill and intangible asset impairment.*
- Validate fair value measurements for acquired intangibles, contingent consideration, equity awards, and other Level 3 valuations.
- Review and document key models (CECL, impairment, valuation, ETR, forecasting), including input validation, logic review, sensitivity analysis, and bias assessment. ASU 2025-05, amending ASC 326-20, Credit Losses was recently released. Click here for additional information regarding ASU 2025-05.
- Update going concern and liquidity assessments, including covenant headroom and downside scenarios; document conclusions and management’s monitoring plan.*
5. New Standards, SEC Focus Areas, and PCAOB Hot Toppics
- Confirm all new accounting standards effective for the current year are evaluated, implemented in systems and processes where applicable, and reflected in accounting policies and disclosures (including SAB 74–style disclosures for not-yet-effective standards, where material). In particular, calendar year end public companies are required to adopt ASU 2023-09, Improvements to Income Tax Disclosures in their 2025 Form 10-K while private companies do so in their 2026 annual financial statements. Click here for additional information regarding ASU 2023-09.
- Reassess operating and reportable segments based on how the business is managed and ensure consistency of segment information across the financial statements, MD&A, earnings materials, and other public communications. Click here for additional information regarding financial statement disclosure considerations. *
- Review non-GAAP measures to confirm they are not misleading, are appropriately labeled, have transparent reconciliations to GAAP, and are consistent period over period (or changes are clearly explained). Click here for additional information regarding financial statement disclosure considerations. *
- Consider internal controls over manual journal entries, including access restrictions, reviews of non-standard and top-side entries, and clear evidence of what reviewers actually do and how potential exceptions are identified and resolved. Click here for additional information regarding internal controls related to manual journal entries.
- Perform a pre-audit review of the statement of cash flows, focusing on classification of routine and non-routine items, consistency with balance sheet accounts, and appropriate treatment of non-cash items and complex transactions (e.g., factoring, supply chain finance, contingent consideration settlements, sale-leasebacks). Click here for additional information regarding renewed focus on the statement of cash flows.
- Align with external auditors on current PCAOB focus areas most relevant to the company (if applicable).
6. Internal Control Over Financial Reporting (ICFR/SOX) (If Applicable)
- Aggregate and evaluate all identified control deficiencies (including those identified by internal audit, external auditor and management) and conclude on severity.
- Consider PCAOB-sensitive areas: design and documentation of management review controls, IT general controls (access, change management), and controls over information produced by the entity (i.e. key reports) and end-user computing tools.
- Demonstrate remediation and retesting of prior-year deficiencies, with clear status for the audit committee and external auditors.
- To the extent there is an immaterial correction of an error arising from a prior period, ensure a robust analysis of the impact on ICFR is performed and documented. *
7. IT and Cyber
- Validate data extraction capabilities from ERP and subledgers for key audit reports; validate completeness and accuracy.
- Document major system changes during the year, including testing and approvals. For companies undergoing an integrated audit, ensure internal controls over these changes are designed and executed appropriately.
- Inventory significant cyber or operational incidents and evaluate whether they affect financial reporting systems, data integrity, or require expanded disclosures in the financial statements or MD&A.
- Particularly for companies undergoing an integrated audit, ensure IT and security teams are aligned on expectations for audit support, including access to logs, change histories, and system configuration evidence.
8. Tax, Legal, and Compliance
- Prepare the year-end tax provision, including domestic and international components, return-to-provision adjustments, valuation allowance and unrecognized tax benefit assessments, and rate reconciliation.
- Calendar year end public companies are required to adopt ASU 2023-09, Improvements to Income Tax Disclosures in their 2025 Form 10-K while private companies do so in their 2026 annual financial statements. Click here for additional information regarding ASU 2023-09.
- Evaluate uncertain tax positions and confirm consistency between tax, legal, and financial reporting views of exposures and contingencies.
- Assess compliance with debt covenants, including documented calculations and support for any waivers, amendments, or covenant relief obtained during the year.
- Coordinate with legal on significant claims and contingencies, update matter lists and ranges of potential outcomes, coordinate with the external auditor regarding attorney letter distribution, and discuss with external auditor the occurrence of any potential illegal acts or non-compliance with rules and regulations.
9. Financial Statements, MD&A, and other Disclosures
- Begin drafting financial statements and notes using preliminary numbers, focusing on areas of high judgment and complexity (credit losses, segments, income taxes, fair value, commitments and contingencies) and updating disclosures to reflect current facts and circumstances. Click here for additional information regarding renewed focus on financial statement disclosures. *
- Update MD&A to reflect current-year business drivers, macro conditions, liquidity and capital resources, and critical accounting estimates. *
- Refresh risk factors and business descriptions where there have been meaningful changes in strategy, markets, regulatory environment, or capital structure. *
- If non-GAAP measures are used, review non-GAAP measures, KPIs, and other performance metrics for consistency with GAAP financials, internal reporting, and external communications. *
- Benchmark disclosures against peers and recent market practice to avoid outlier positions in sensitive areas (segments, cyber, liquidity, and macro risks).
10. Audit Logistics and Communication
- Align with external auditors on operational plans for year-end work, including inventory counts, site visits, and use of specialists (valuation, tax, IT, actuarial).
- Establish a recurring status cadence (e.g., weekly) during the close and audit period, using a simple dashboard for PBC status, open issues, and key decisions requiring escalation.
- Agree on protocols for handling issues during the audit (who is involved, how positions are developed, how and when matters are elevated).
- If non-GAAP measures are used, review non-GAAP measures, KPIs, and other performance metrics for consistency with GAAP financials, internal reporting, and external communications. *
- Prepare audit committee materials early, including a concise summary of key risks, significant estimates and judgments, control issues, and status of major initiatives.
*Represents a key focus area of the Securities and Exchange Commission (SEC) based on the recent SEC comment letter activity. Click here for further information on SEC comment letter trends.
How Virtas can help
Virtas has extensive expertise in technical accounting and financial reporting. We work alongside your team to ensure complex transactions, policies, and disclosures are properly assessed, documented, and communicated.
Our Professionals Provide:
- Expertise in U.S. GAAP and SEC reporting requirements
- Support to meet close and reporting deadlines
- Guidance to strengthen disclosures and internal controls and reduce compliance risk
- Practical insight to enhance readiness for transactions and investor engagement
If you are interested in discussing this checklist, please reach out to Jon Hunt at jhunt@virtaspartners.com.