Audit Working Papers: What Startups Should Keep and a 15-Minute Data Room Checklist

Foundational Understanding: Thinking Like an Auditor to Prepare Your Documentation

To prepare an effective audit documentation checklist, you first need to understand an auditor’s objective. Auditors are not trying to catch you. Their goal is to provide 'reasonable assurance' that a company’s financial statements are free from material misstatement. They achieve this by systematically testing the transactions and balances you report in your accounting software.

Their primary tool is the Provided by Client (PBC) list, which is a formal request for the evidence they need. This evidence is what makes up your audit documentation, often called 'audit working papers'.

Audit working papers: The collection of documents that substantiate the figures in your financial statements, forming the evidence base for an auditor's opinion.

For US companies, this evidence must align with US Generally Accepted Accounting Principles (US GAAP). For UK startups, auditors will typically check against Financial Reporting Standard 102 (FRS 102). Understanding this framework helps you anticipate requests and see your documentation not as a chore, but as the proof behind your company’s financial story. It is the core of preparing for an external audit.

What to Keep: An Audit Documentation Checklist for Startups by Tier

Your audit documentation needs evolve with your company’s complexity. Storing every draft and receipt is inefficient, but keeping too little creates risk and can delay an audit. The reality for most startups is more pragmatic: your needs can be tiered based on your stage, providing a clear roadmap for organizing audit files.

Tier 1: Pre-Seed & Seed (The Corporate Foundation)

At this early stage, the focus is on corporate legitimacy. Auditors, and more frequently investors, want to see that the company is properly formed, legally sound, and that its ownership is clear. This forms the bedrock of any future due diligence.

• Corporate and Legal: Articles of incorporation, bylaws, and any foreign qualification filings if you operate in multiple states or countries.
• Equity: All signed stock purchase agreements, a current and accurate capitalization table (cap table), and any stock option plan documents.
• Core Financials: Complete bank statements for all accounts and direct access to your QuickBooks or Xero file.
• Key Contracts: Founder agreements, consulting agreements, and any early advisor or contractor agreements.

Tier 2: Series A (Systematizing Operations)

As you raise a Series A and grow your team, the scope of startup audit requirements expands. The focus shifts to proving your business operations are real and repeatable. Auditors look for more structured processes and controls that go beyond basic corporate filings.

• Financial Schedules: Detailed accounts receivable and accounts payable aging reports, which show who owes you money and who you owe.
• All Key Contracts: All signed customer contracts and major vendor agreements. A scenario we repeatedly see is a key SaaS contract lost in a founder’s personal email inbox, causing significant delays.
• Payroll and HR: Detailed payroll reports from your provider (like Gusto or Rippling), including records for all new hires and terminations to verify salary expenses.
• Major Expenses: Invoices and receipts for all significant purchases. A good rule of thumb is to meticulously track invoices for any expense greater than $1,000.

Tier 3: Series B and Beyond (Scaling & Financial Controls)

By Series B, auditors expect more sophisticated financial management. They are testing to see if you have mature internal controls and policies that can support the company as it scales. The audit evidence for startups at this stage becomes much more detailed.

• Revenue Recognition: For SaaS or Deeptech companies with complex, long-term contracts, auditors will need detailed schedules showing how you recognize revenue over the life of the contract, compliant with standards like ASC 606.
• Board Governance: Signed board minutes and formal approvals for major financial decisions, such as large capital expenditures or new debt.
• R&D Tracking: For Biotech and Deeptech startups, meticulous records of research and development expenses are crucial for both financial audits and claiming valuable tax credits.
• Formal Policy Documents: Written expense policies, credit card usage policies, and other internal control documents that guide employee behavior and protect company assets.

How to Organize It: The 15-Minute Data Room for Organizing Audit Files

Knowing what to keep is only half the battle. Without a clear folder structure, retrieving the right document during an audit becomes a time-consuming headache. A messy collection of files signals operational chaos to an auditor or investor. In contrast, a clean data room signals competence and control before they even look at a single number.

You don’t need special software. A well-organized system in Google Drive, Dropbox, or SharePoint is perfectly sufficient. It’s a system you can build in 15 minutes that will save you hours of future work. What founders find actually works is a simple, top-level folder structure. This becomes the single source of truth for all critical audit and due diligence requests.

Here is a simple structure to implement for your audit file management:

• 01_Corporate_Legal
  • Formation_Docs
  • Board_Minutes_and_Consents
  • Cap_Table_and_Equity_Docs
  • Insurance_Policies
• 02_Financials_and_Tax
  • Audited_Financials_(Previous_Years)
  • Bank_and_Credit_Card_Statements
  • Tax_Filings_(Federal_and_State)
• 03_Revenue
  • Customer_Contracts
  • Revenue_Recognition_Schedules
  • Payment_Processor_Reports_(Stripe_Chargebee)
• 04_Expenses
  • Vendor_Contracts
  • Major_Invoices_(Over_1k)
  • Leases_(Office_and_Equipment)
• 05_HR_and_Payroll
  • Offer_Letters_and_Employment_Agreements
  • Payroll_Reports_by_Pay_Period
  • Employee_Benefits_Plans

This logical structure simplifies finding exactly what an auditor needs without a frantic, last-minute search through old emails and shared folders.

How Long to Keep It: A Financial Records Retention Policy for Startups

Confusion over differing UK and US record-retention rules is a common pain point. Keeping files too long creates unnecessary data security risks, while deleting them too soon can lead to serious compliance issues. Holding onto old employee data or customer contracts beyond their required retention period, for example, creates an unnecessary liability under regulations like GDPR.

The official guidance varies. In the US, the IRS generally suggests keeping records for 3 to 7 years depending on the context, as outlined in IRS Publication 583. For UK-based startups, the rule is more specific: HMRC requires records to be kept for 6 years after the end of the last company financial year they relate to, per its HMRC CH14600 guidance.

To simplify this and create a safe policy covering both jurisdictions, a recommended safe-harbor financial records retention policy is the '7-year rule'. Adopting a policy to keep all core financial, corporate, and contract documents for seven years ensures you meet the primary requirements in both the US and UK without overcomplicating your process.

Practical Takeaways for Preparing for an External Audit

The request for a financial audit or due diligence can feel like a sudden, high-stakes exam. But preparing for it doesn't have to derail your startup. It’s not about passing or failing; it's about demonstrating efficiency and control. The key is to shift from a reactive scramble to a proactive, organized mindset.

Start today by implementing the simple, logical folder structure for your critical documents. Use the tiered approach to understand what matters most at your current stage, from foundational legal paperwork at seed to detailed revenue schedules at Series B. By adopting the 7-year rule for retention, you create a simple, compliant policy that works for both UK and US operations.

This preparation is more than just an audit-readiness exercise. It builds a strategic asset that streamlines future fundraising, simplifies due diligence, and ultimately adds value to your company. To continue building your knowledge, explore our Audit Preparation hub for more core steps and templates.

Frequently Asked Questions

Q: What's the difference between a financial audit and due diligence?

A: A financial audit is a formal process to verify that past financial statements are accurate and comply with accounting standards. Due diligence is a broader investigation, typically for an investment or acquisition, that assesses financial health, legal risks, and future opportunities. Due diligence often uses audited financials as a starting point.

Q: Do I need special software for my audit documentation?

A: No, you don’t need expensive virtual data room (VDR) software for an early-stage audit. A well-organized system in Google Drive, Dropbox, or SharePoint is perfectly sufficient. The key is a consistent folder structure and naming convention, not complex tools. This makes organizing audit files simple and affordable.

Q: How should I handle digital receipts versus paper ones?

A: Digital is always preferred. You should scan any paper receipts immediately and file them in your organized cloud storage system. Tools like Expensify or simple mobile scanning apps can automate this. This approach creates a searchable, secure record and eliminates the risk of losing physical copies.

Q: What happens if an auditor requests a document I cannot find?

A: Be transparent with your auditor immediately. Explain the situation and what steps you've taken to try and locate it. In many cases, they can suggest alternative evidence or perform different procedures to get the assurance they need. Hiding the issue will only create distrust and cause further delays.