FA-301i · Module 3

Audit Readiness

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Audit readiness is not a year-end activity — it is a continuous state. An audit-ready company can produce the documentation for any recognition decision within 24 hours: the contract, the obligation analysis, the SSP allocation, the recognition schedule, and the modification history. Companies that are not audit-ready spend the two weeks before the audit scrambling to reconstruct documentation that should have been created in real time. That scramble is expensive, stressful, and error-prone.

Revenue Recognition Audit Package — Per Contract:
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□ Signed contract with all amendments
□ Performance obligation identification memo
□ SSP analysis with method and evidence
□ Transaction price determination (incl.
  variable consideration analysis if applicable)
□ Allocation calculation worksheet
□ Recognition schedule (monthly)
□ Modification analysis (for each modification)
□ Deferred revenue reconciliation
□ Cash collection reconciliation
──────────────────────────────────────────────────────

For the top 20 contracts by value:
  All 9 items must be current and accessible.

For all other contracts:
  System-generated schedules + exception
  documentation for non-standard treatments.

If any item takes more than 1 hour to
produce, your documentation process
has a gap.

Do This

  • Create documentation at the time of the recognition decision, not at audit time
  • Maintain a "judgment memo" for any non-standard recognition treatment
  • Run a mock audit quarterly — pull 10 random contracts and verify complete documentation

Avoid This

  • Reconstruct documentation from memory during audit prep — memory is unreliable and auditors know it
  • Rely on the system to produce all documentation — judgment calls require narrative explanation
  • Wait for the auditor to request documentation before organizing it — proactive preparation earns goodwill