Misochain: Pre-Audit Due Diligence for an Aerospace Components Maker
Misochain was building flight-critical aircraft parts faster than it was building its finance function. SRF was asked to find every gap an auditor would find, before the auditor did.
Summary
- Misochain, a Bengaluru maker of flight-critical aircraft components, asked SRF for due diligence ahead of a formal audit, to learn whether its financial records would hold up.
- SRF found five gaps: books not kept current, prior-year interest not accrued, no monthly close, MIS or reconciliation, payroll that did not reconcile, and no fixed asset register, which had inflated expenses.
- SRF diagnosed and advised but did not take over the finance function, giving Misochain a clear map of what to fix and the time to fix it before the auditors arrived.
The situation
Misochain Technologies designs and manufactures flight-critical components for aircraft, including air data probes, actuators and solenoid valves, from Bengaluru. It works in one of the most tightly regulated corners of engineering, where certification is slow and quality has to be proved, not asserted.
Its engineering had moved faster than its finance function. That is normal in a young company run by engineers: the product gets the best people and the books get whatever time is left. The problem comes when someone from outside, an auditor, an investor or a regulator, starts asking questions the company cannot yet answer.
Misochain came to SRF Capital Studio before that moment arrived. It wanted due diligence ahead of a formal : an independent look at its financial records to find out whether they would survive the audit and, if not, exactly where they would fail.
What SRF was, and was not, asked to do
The brief was narrow on purpose. SRF was not hired to run Misochain's finances or to repair them. It was hired to look, rigorously and independently, and to report every gap an auditor was likely to find.
That scope is the point of pre-audit diligence. The value lies in finding problems while the company can still fix them on its own terms, not in having an adviser fix them.
A misstatement your own adviser finds is a housekeeping task; the same misstatement found by an auditor is a finding.
What SRF found
SRF reviewed Misochain's financial records and controls. None of the gaps was unusual for a fast-moving engineering company, and each could be corrected. Taken together, though, they were serious enough to put a clean audit at risk.
1. The books were not current
records were not being kept up to date or on a consistent basis. Without maintained books an audit has nothing to start from, and management has no reliable view of the financial position on any given day.
2. Prior-year interest had not been accrued
Interest relating to earlier years had not been booked. That understated liabilities and made the cost of the company's borrowing look lower than it was. An auditor would have raised it as a material correction on first reading.
3. No monthly close, no MIS, no reconciliation
The books were not closed each month, there was no management information system, and accounts were not reconciled as routine. So the company had no running view of its own numbers, and an audit would have meant rebuilding a year of activity in a hurry.
4. Payroll did not reconcile
Payroll records did not match their supporting documents cleanly. Payroll gaps can turn into statutory and compliance exposure quickly if they are left alone.
5. No fixed asset register
Misochain was not keeping a fixed asset register. As a result, spending that should have been capitalised as assets had been booked as expenses. Costs were overstated and reported profit understated, and the balance sheet was missing assets the company actually owned.
How SRF worked
SRF's role stayed diagnostic and advisory from start to finish. The work had four parts.
- Findings, explained. Each gap went directly to Misochain's leadership with a plain account of why it mattered and how an auditor would read it, without playing risks down or dressing them up.
- Conditions tested. SRF reviewed the Conditions Precedent, the Conditions Subsequent and the relevant Chartered Accountant points, and checked whether the company could actually meet the standards external scrutiny would apply.
- Recommendations per gap. Every finding came with practical steps to remediate it before the audit.
- One picture. SRF pulled the whole diligence into dashboards and a structured presentation that showed both the gaps and the areas where records were already being kept properly.
The last part matters more than it looks. A diligence report that lists only problems distorts the picture and can send a team chasing the wrong things. Showing what was sound alongside what was not gave Misochain's leadership a fair view of its financial health, and one document to return to while fixing it.
SRF never took over the finance function. The deliverable was the diagnosis, the recommendations and the presentation. Keeping to that scope left Misochain with an exact map of its weaknesses and the time to deal with them properly, rather than a quick patch it did not own.
The five gaps SRF's pre-audit diligence found at Misochain, and what each would have caused if first found by the auditor
| Gap | What SRF found | What it would have meant in the audit |
|---|---|---|
| Books not maintained | Records not kept current or consistent | The audit stalls at the start; records can be brought current first |
| Prior-year interest | Interest from earlier years not accrued | Liabilities understated; a material adjustment raised by the auditor |
| No monthly close or MIS | No monthly close, no MIS, no routine reconciliation | A year of activity rebuilt under audit pressure, with errors likely |
| Payroll | Records did not reconcile with supporting documents | Statutory and compliance exposure if left uncorrected |
| No fixed asset register | Capital spending booked as expense | Expenses overstated and profitability distorted, inviting challenge |
Why it mattered
Pre-audit diligence is judged by what does not happen. Because the gaps surfaced early, Misochain did not have to face them in the middle of an audit, when every correction costs more in credibility, time and fees. A misstatement your own adviser finds is a housekeeping task; the same misstatement found by an auditor is a finding.
It could fix them on its own timetable and go into the audit with records it could defend. In aerospace, where customers, certifiers and investors all weigh rigour heavily, that standing is worth protecting.
What this means for a founder or CFO in the same spot
Most engineering-led companies in India reach their first serious audit, due diligence or funding round with some version of Misochain's five gaps. The ones that come through well are usually the ones that looked first.
- Commission the look before the audit, not during it. A few weeks of independent review ahead of time costs far less than audit adjustments, delays and a qualified opinion.
- Check the unglamorous accruals. Interest on loans, especially older or related-party loans, is one of the most common items left unbooked in young companies.
- Start a fixed asset register now. If you build test rigs, tooling or lab equipment, you are probably expensing assets. That depresses reported profit and will be reclassified eventually, on someone else's timetable.
- Close the books monthly, even roughly. A monthly close with reconciliations is the difference between an audit that checks your work and one that does it for you.
- Reconcile payroll to its documents. Payroll touches statutory filings, so small inconsistencies become compliance questions quickly.
- Ask for a balanced view. A good diligence report shows what is sound as well as what is broken, so your team fixes the right things first.
This is the work of our due diligence and pre-due diligence teams. Where the gaps point to a missing month-end discipline, controllership and MIS are the fix. For the wider pattern of founder-run finance outgrowing itself, read why a founder's gut stops working past ₹20 crore.
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