PCAOB audits vs. private company audits

Private companies are audited under the AICPA's generally accepted auditing standards. Public companies, and companies filing to go public, are audited under the standards of the Public Company Accounting Oversight Board. The financial statements are the same US GAAP; the difference is in the audit procedures, documentation, independence rules, and the firm's own inspection regime.

Financial statements included in an S-1 or a reverse merger proxy must be audited under PCAOB standards. A prior AICPA audit cannot simply be relabeled, so the firm either re-performs procedures or the company engages a PCAOB-registered firm from the start. Companies planning an IPO within two to three years often choose PCAOB standards for their private audits to avoid the re-audit.

PCAOB audits are more expensive and more demanding on the finance team, particularly around estimates, journal entry testing, and the documentation of judgments. That cost is the reason the decision should be made deliberately with the financing plan in view.