An audit by an auditing firm (submission of audited financial statements) is mandatory for listing on Nasdaq.
Specifically.
- The financial statements must be audited by an audit firm registered with the Public Company Accounting Oversight Board (PCAOB) in the US.
- Financial statements are usually prepared in accordance with US GAAP or International Financial Reporting Standards (IFRS)
- The auditor’s report is attached to the Form F-1 (for foreign companies) or Form S-1 (for US companies) filing.
Almost all companies considering listing on Nasdaq are currently unlisted and have not had their financial statements audited by a certified public accountant or auditing firm. Therefore, when it comes to getting audited for a Nasdaq listing, many companies think of it as an extension of the financial statement checks carried out by their tax advisor, and when the audit by the auditing firm actually starts, there are many cases where the audit does not proceed smoothly, the client/company does not understand what the auditors are saying well, or time passes without understanding what the auditors are saying well.
In a nutshell, don’t underestimate the importance of an audit by an audit company. There are many cases where an audit by an audit company starts and after six months, when it is expected to be completed smoothly in two or three months, the company is still unable to prepare the documents and data requested by the audit company, or has difficulties communicating in English and dealing with the audit company located overseas, resulting in a significant delay from the original schedule.
Many of the problems encountered in dealing with such audit firms are,
- Failure to submit and prepare the documents that the audit firm instructs
- The company do not understand the messages and questions in English from the audit firm.
- Failure to understand the overall flow of the audit, and thus misunderstanding the order of priority of what needs to be done and when, and not following the flow expected by the audit firm.
These things need to start immediately after the audit by the audit firm has started, not months or six months after the audit has started. The later the action is taken, the more irreversible it will be and the more enormous the costs will be.
You have already paid for the audit and have incurred additional costs everywhere else, so it takes courage to incur additional costs to deal with the auditors, but as mentioned at the beginning, an audit (audit report) by an audit firm is a MUST for a Nasdaq listing. We recommend that you consider the option of outsourcing the audit to a consultant who supports the audit by an auditing firm.
The audit firm’s response to a Nasdaq listing is only as good as the consultant’s ability to conduct a truly thorough audit. When selecting a consultant, it is important to carefully assess whether they have experience in auditing under PCAOB standards, have experience in auditing US listed companies locally in the US, have ability of professional English, have a good understanding of the basics of auditing (years with an audit firm is not an indicator) and, above all, are passionate about going IPO. It is important to assess these factors carefully.