Startups and Audit Challenges

As startups increasingly move to the mainstream of the Indian economy, prioritising corporate governance is essential to ensure that the juggernaut does not falter. Within the Lightbox portfolio, attention to corporate governance frameworks that engender transparency and accountability is as important as building differentiated and high-growth businesses.

Given the relatively nascent and dynamic nature of startup businesses, governance challenges faced by such businesses tend to be different from established businesses and call for a more curated approach in terms of establishing the right frameworks and preventing missteps.

(Clockwise) Dipesh Sonawat, B S R & Co. LLP; Rashmi Guptey, Lightbox; Hrishikesh Sathe, PwC; and Piyush Kakkad, Rebel Foods

With a view to sharing governance learnings and best practices specific to startup businesses, Lightbox’s legal and finance team recently kicked off a webinar-based knowledge series for the portfolio. The first of the series focused on auditing challenges faced by startups. 

The session drew on insights from Piyush Kakkad, CFO of Rebel Foods, a Lightbox portfolio company; Dipesh Sonawat, a seasoned financial services assurance specialist with B S R & Co. LLP who has been advising companies on global financial reporting standards for 17 years; and Hrishikesh Sathe, Deals Partner with PwC.

The session was moderated by Lightbox CFO and general counsel Rashmi Guptey.

“The biggest pain point startups often face (within the governance universe) is with respect to statutory audits. Based on a survey conducted within the portfolio, we found that the common challenges included lack of automation, lack of clarity on how to treat non-cash transactions and efficient project management of the audit process,” said Guptey.

Here are a few insights shared by our panelists:

• “We (CFOs)  play an important role as a bridge between management, investors and auditors. First of all, it’s important to view the audit partner as a consultant, guide to the company. The relationship needs to be more as a partnership and seeking proactive advice during the year. I have seen auditors accept this responsibility willingly because they also don’t like surprises at the end of the year,” said Rebel Foods’ Piyush Kakkad, emphasising on the critical role that a CFO performs.

• “Transparency on all transactions, in whatever form or arrangement, is very important from day one. There has to be a formal framework in place within the organisation to enable capturing this. In the long term, this practice will provide a lot of comfort to all different stakeholders like investors, regulators, auditors and diligence advisors. Financial Statements are the only truth," said B S R & Co. LLP's Dipesh Sonawat on the matter of non-cash transactions (for example ESOPs and stock swaps), especially when a startup has a public listing on the horizon.

• “Due diligence begins where audit ends. The quality of audit, efficiency and timeliness of quarterly/ annual book closing and the capability of the F&A team to produce timely management reporting; are key soft inputs while performing due diligence. Ramping up the F&A team capabilities, investing in tools and accelerators and ensuring a timely completion of audit are some of the key post deal considerations from an investor's point of view,” said PwC’s Hrishikesh Sathe.

We would like to thank our panelists and portfolio teams for their participation in what turned out to be an extremely engaging and informative session. We’ll be back soon with the next one.