Your first IFRS audit is a milestone. For many Ukrainian IT companies, it marks the transition from a privately managed operation to a business that meets international standards of financial transparency. It is also, frankly, a stressful process if you are not prepared. The good news is that thorough preparation can turn what might be an adversarial exercise into a productive collaboration with your auditors.

When is an IFRS audit required?

Not every company needs an audit immediately upon adopting IFRS. Under Ukrainian law, mandatory audit requirements apply to large enterprises (those exceeding at least two of three thresholds: EUR 20 million in total assets, EUR 40 million in net revenue, or 250 employees), public interest entities, and entities whose securities are publicly traded. However, many Ukrainian IT companies pursue voluntary IFRS audits because investors, acquirers, or parent companies require them.

In the context of M&A - where Ukrainian tech deals reached $496 million across 41 transactions in 2024 - audited IFRS financial statements are almost always a prerequisite for serious negotiations. Buyers will not rely on unaudited management accounts when the stakes are that high.

If you are planning a fundraising round, preparing for a potential exit, or simply want to build credibility with international partners, the question is not whether to get audited but when to start preparing.

Choosing your auditor

The choice of auditor sends a signal to your stakeholders. Understanding the options helps you make the right decision for your company's stage and ambitions.

Big 4 firms (Deloitte, EY, KPMG, PwC). These firms offer global brand recognition and deep IFRS expertise. Their audit opinions carry maximum weight with international investors and stock exchanges. However, they are the most expensive option and may not prioritize smaller engagements. For companies with revenue above $20-30 million or those preparing for an IPO, Big 4 is often the expected choice.

Mid-tier international firms (BDO, Grant Thornton, Baker Tilly, Mazars, RSM). These firms offer strong IFRS capabilities with more competitive pricing and, often, more personalized attention. They are well-respected by private equity firms and most institutional investors. For the majority of Ukrainian IT companies in the $5-30 million revenue range, a mid-tier firm provides an excellent balance of credibility and cost.

Local firms with IFRS practice. Several Ukrainian audit firms have built credible IFRS practices. They offer the lowest cost and the greatest accessibility but their audit opinions may carry less weight with international stakeholders who are unfamiliar with the firm's reputation.

When selecting an auditor, consider their experience with IT companies specifically. Revenue recognition under IFRS 15 for software contracts, share-based payment accounting under IFRS 2, and foreign currency translation under IAS 21 are all areas where industry-specific expertise matters. Ask potential auditors about their IT sector client portfolio and request references.

Preparing your working files

Audit preparation is fundamentally about documentation. Auditors need to verify that your financial statements are materially correct by examining the evidence behind each significant balance and transaction. The more organized your working files, the faster and less painful the audit will be.

A complete set of working files for an IT company's IFRS audit typically includes:

  • Trial balance mapping. A detailed reconciliation showing how each P(S)BO account maps to the IFRS chart of accounts, including all transformation adjustments with supporting calculations.
  • Revenue recognition workpapers. Contract-by-contract analysis for significant customers, showing the application of the five-step IFRS 15 model: identified performance obligations, transaction prices, allocation methodology, and recognition timing. For T&M contracts, summary schedules with billing rates and hours are typically sufficient.
  • Intangible asset schedules. For capitalized development costs, detailed records showing when each project met the IAS 38 capitalization criteria, costs incurred by phase, useful life determinations, and amortization calculations.
  • Employee benefit calculations. If you have stock option plans, the IFRS 2 valuation model (typically Black-Scholes or binomial), grant date fair values, vesting schedules, and the resulting expense allocation. For annual leave provisions, a schedule of accrued but unused leave for each employee.
  • Foreign currency analysis. Documentation of functional currency determination, exchange rates used for translation, and the calculation of foreign exchange gains and losses on monetary items.
  • Lease calculations. For IFRS 16, a lease-by-lease schedule showing the right-of-use asset, lease liability, discount rate determination, and the resulting depreciation and interest expense.
  • Related party disclosures. A comprehensive list of related parties, all transactions with them during the period, and outstanding balances at the reporting date.

Common audit findings for IT companies

Based on our experience supporting Ukrainian IT companies through their first IFRS audits, certain issues arise repeatedly. Being aware of them in advance allows you to address them proactively.

Inadequate revenue recognition documentation. This is the most common finding. Auditors expect to see evidence that management has systematically applied the IFRS 15 five-step model. A spreadsheet showing monthly revenue by client is not sufficient - auditors need to see the analysis behind it. For material contracts, this means documented identification of performance obligations, standalone selling price estimation, and the basis for recognizing revenue over time or at a point in time.

Missing or incomplete IFRS 1 first-time adoption disclosures. IFRS 1 requires specific disclosures about the transition from previous GAAP, including reconciliations of equity and profit or loss. Companies often underestimate the volume of disclosure required. The transition date balance sheet, in particular, requires careful preparation and is frequently a source of audit queries.

Functional currency misidentification. Many Ukrainian IT companies assume their functional currency is UAH because they are registered in Ukraine. Under IAS 21, the functional currency is the currency of the primary economic environment in which the entity operates. For companies that price contracts in USD, pay developers in USD-linked salaries, and hold most cash in USD, the functional currency may actually be USD. Getting this wrong affects every line item in the financial statements.

Lease classification errors. With IFRS 16 bringing most leases onto the balance sheet, companies sometimes miss leases embedded in service agreements or misclassify short-term leases. Auditors will ask for a complete lease inventory, including office leases, equipment leases, car leases, and any arrangements that contain a lease component.

Insufficient disclosure notes. IFRS financial statements require significantly more disclosure than P(S)BO statements. Accounting policies must be described in detail, judgments and estimates must be explained, and sensitivity analyses may be required. First-time preparers consistently underestimate the length and detail of the notes.

A realistic timeline

Companies often ask how long they should allow for their first IFRS audit. A realistic timeline for a mid-sized IT company (100-500 employees) looks like this:

  • Months 1-3: Gap analysis and planning. Identify differences between current P(S)BO policies and IFRS requirements. Engage the auditor for a planning meeting. Agree on the audit timeline, materiality thresholds, and key areas of focus.
  • Months 4-9: Transformation and preparation. Prepare the IFRS opening balance sheet (transition date), calculate all adjustments, build working files, and draft the financial statements including notes. This is the most labor-intensive phase.
  • Months 10-12: Interim audit. Many auditors conduct an interim visit to test controls and review preliminary working files. This is an opportunity to identify and resolve issues before the year-end crunch.
  • Months 13-15: Year-end close and final audit. Finalize the financial statements, complete all working files, and support the auditors through their final fieldwork. Address any findings and agree on the final version of the statements.
  • Months 16-18: Audit opinion and issuance. The auditors complete their review procedures, issue their opinion, and you publish the audited financial statements.

In total, plan for 12 to 18 months from the decision to pursue an IFRS audit to the issuance of the audited financial statements. Attempting to compress this timeline significantly increases the risk of audit qualifications or delays.

The management representation letter

At the conclusion of the audit, your auditors will ask management to sign a representation letter. This letter confirms that management has fulfilled its responsibility for the preparation of the financial statements, that it has provided the auditors with access to all relevant information, and that it has disclosed all known matters that could affect the financial statements.

The representation letter is not a formality. By signing it, management takes explicit responsibility for the completeness and accuracy of the information provided. Ensure that the person signing understands every representation being made and that the company can stand behind each statement.

Building a productive relationship

The most successful first audits share a common characteristic: management views the auditors as partners in achieving high-quality financial reporting, not as adversaries looking for mistakes. Respond to audit queries promptly and completely. If you disagree with an auditor's position, discuss it early and provide your technical reasoning. Surprises late in the audit process erode trust and extend timelines.

Your first IFRS audit establishes the baseline for all future reporting. The policies you set, the judgments you document, and the working file structure you build will carry forward for years. Investing the time to get it right from the start pays dividends in every subsequent reporting period.