Questions Every Start-Up Board Should Ask their Auditor

In the last five years, I have seen a marked improvement in the way VC-backed boards work with auditors. Many now use as a guide the kind of due diligence questionnaires that we typically prepare for the audit committees of our public company clients. It's a pretty good practice, as long as it's consistently applied and adjusted for the nature of a prviate company.

Here are the questions I wish ALL my board regularly asked of their auditors (or managment):

1. Can you give us a valuation of the level of expertise and overall competence of the Company's finance personnel? (This is particularly important as the trend to underhire continues. "We'll hire a seasoned CFO if and when we're IPO ready" is a strategy I still hear quite regularly.)

2. Are there any unusual revenue recognition issues?

3. Do you believe the Company's accounts receviebales reserves are adequate?

4. What export controls is the Company subject to? (This is an area undergoing considerable change. For example, the US has a number of changes under consideration that could impose new controls on everything from nanomaterials to medical devices.)

5. Level of internal controls - how does the Company compare to industry standards?

My two cents.