Avoiding Audit Pitfalls: Tips for Pre-IPO Life Sciences Companies

Over the last decade, over 400 life sciences companies completed an IPO, with the peak being immediately after the COVID-19 pandemic. While activity dipped in 2022 and remained stagnant through 2024, the industry has finally seen the return of IPO activity the past year and the resulting pressures for certain life sciences companies to complete an IPO continues.  

Company CEOs face pressure to go public quickly in order to gain access to more extensive capital markets to secure financing for operational needs. However, the early stages of the IPO process are audit-intensive, requiring careful preparation. Audit readiness and effectiveness is crucial to meet milestones in the IPO process, as delays and missteps could risk future investor confidence and funding. 

Key Takeaways 

• IPO success depends on early preparation, with companies often needing 12-18 months to meet audit, financial reporting, and SEC filing requirements. 

• PCAOB-compliant audits are critical for IPO readiness, and companies that have not previously undergone these audits should plan for additional time and effort. 

• Strong governance, documented processes, and effective internal controls help support compliance and reduce potential delays throughout the IPO journey. 

• Life sciences companies face unique accounting and reporting complexities, making industry-specific audit expertise especially valuable. 

• Close coordination among management, auditors, legal counsel, and investment bankers can help streamline the IPO process and avoid costly setbacks. 

Why Standard Audit Support Isn’t Enough 

Many audit providers are not structured for or struggle with the pace and complexity of an IPO. For life sciences companies, areas such as R&D expenses, licensing and collaboration agreements, and debt and equity instruments are complexities within the life sciences industry that require tailored audits. An inexperienced audit team can create avoidable delays, trigger rework, and introduce issues that may continue after the company is public.  

Top 10 Audit Tips for Life Sciences Companies Preparing for an IPO 

1. Prepare 12 to 18 Months to Meet Requirements 

A registration statement filed with the SEC requires audited annual financial statements and the preparation of current interim financial statements. Depending on company size, this may include two to three years of audited comparative financial statements, plus unaudited interim financial statements from the most recent year-end through the most recent quarter-end.  

These audits and reviews must be conducted under Public Company Accounting Oversight Board (PCAOB) standards, and audit firms are required to perform services over the referenced registration statement to ensure the companies remain compliant with the U.S. Securities Exchange Commission (SEC). If prior audits were not completed under PCAOB standards, companies should build in time for a new audit or PCAOB audit uplift.  

2. Governance Structure Compliance & Maintain Minutes 

The SEC sets minimum standards for the composition of the board of directors, nominating and governance committee, compensation committee, and audit committee. Companies should also maintain detailed meeting minutes and board resolutions. This supports governance discipline and gives auditors the documentation they need during the IPO process. 

3. Maintain all Investment Banker, Legal & Other Transaction Related Agreements 

During an IPO, companies often engage bankers, legal counsel, and other third parties. Management should track and maintain all agreements that have been entered into, to ensure transactions are recorded appropriately in current period financials and considered properly in future reporting after the IPO.  

4. Organizational Collaboration 

Connect your investment banker, SEC legal counsel, auditors, management, and other parties to be on the same page with timing and to kick off the due diligence process.  

5. Develop Financial Reporting Processes 

Document current financial reporting processes and identify gaps early. IPO preparation is lengthy and will require data to be pulled and provided in several key areas to support audit testing and filings. Well-defined processes help streamline requests from auditors, SEC legal counsel, and investment bankers.

6. Enhance Internal Control Processes 

Upon IPO, management must file an annual report on the effectiveness of its internal controls over financial reporting (ICFR) in its Form 10-K. While the company may not immediately require an auditor attestation on ICFR, management’s assessment is still required. Strengthening controls and documentation during the IPO process helps companies prepare for public company reporting expectations and reduces avoidable compliance strain later. 

7. Personnel 

Many pre-IPO life sciences companies operate on lean finance teams. Adding internal hires or outside specialists can strengthen financial reporting and internal control efforts during a high-demand period. If insufficient accounting and financial reporting personnel are in place, this can lead to further delays in the IPO timeline and additional costs to the workstream. 

8. Document Key Transactions 

Document key transactions early, maintain technical accounting memos, and organize documents to support any enhanced financial statement disclosures.  

9. Organize a Timeline for Required Consents 

Part of filing a registration statement will require consent from your auditor and SEC legal counsel at a minimum. Keeping these parties informed and organizing a timeline will make the process more efficient. 

10. Prepare for SEC Comments 

After the first filing of the registration statement, the SEC will provide comments and questions on the registration statement. Be prepared to review and respond to multiple rounds of review before the registration statement is declared effective. 

The Importance of a Responsive, Industry-Specific Audit Provider 

During an IPO, your audit provider must be present, provide technical insight, adapt to changes in the process, and resolve issues in real-time. The right audit provider works closely with accounting personnel, consultants, and other external parties involved in the IPO process. That kind of coordination helps reduce rework, supports key milestones, and gives executives greater confidence as they manage broader strategic decisions. at kind of coordination helps reduce rework, supports key milestones, and gives executives greater confidence as they manage broader strategic decisions.  

How Wolf & Company Supports Pre-IPO Life Sciences Companies 

Wolf’s Life Sciences team includes professionals with experience in PCAOB standards and registration statement support for both pre-IPO and public companies. Key strengths of the team include:  

• Responsive client service that helps management navigate audit demands throughout the IPO process. 

• Life sciences-focused audit and accounting professionals that have deep understanding of complex technical accounting matters such as equity, convertible debt, and SAFE financings, and license and collaboration agreement terms. 

• IPO experience supporting life sciences companies through the registration and audit process, including teams navigating the IPO path for the first time and those with prior transaction experience.  

If your team is preparing for an IPO, Wolf’s Life Sciences team can help you prepare for the reporting demands ahead. Contact a member of Wolf’s Life Sciences team to learn more about IPO audit readiness.