5 ways to prepare for a successful investment fund audit

No one loves an audit, including investment partnership leaders, and all involved want the process to be as quick and painless as possible.

While your auditor should do everything they can to smooth out the undertaking, managers play a critical role as well.

Consider these five steps to help ensure that your fund audit moves along efficiently, and that your manager gains maximum value from the exercise.

1. Communication

Communicate early and often. Touch base with your auditor throughout the year to discuss anything that might impact the audit such as changes you’re contemplating or unusual issues you’re facing. Ask questions to leverage their knowledge and maximize the value to you. Then get an understanding of the process so you know what to expect.

2. Interim planning

The smoothest investment audit starts before your year ends. Obtain a PBC (prepared by client) request list with a timeline of when items are needed. Spreading out these requests between interim and year-end can minimize the year-end rush.

Interim procedures often include understanding the entity, assessing risks, walking through key controls, performing preliminary analytical procedures and getting a start on some account balance testing. Any questions that can be addressed during the interim allows for more time for consideration. Let the auditor know about any significant changes you expect between interim and year-end so they can incorporate that in their audit plan.

Service providers also affect the audit plan. Thoughtfully consider TPA (third party administrator), broker, attorney, etc., selection. Having the right service providers can improve audit efficiency and the potential for issues to be discovered.

3. Documentation

Auditors will request plenty of documentation. You’ll need to provide agreements – partnership agreement, private placement memorandums and significant contracts. They’ll also want to see accounting records, such as trial balances and partner allocations, as well as supporting documents like invoices and contribution and withdrawal documents. Additionally, auditors will review significant judgments, such as valuation models.

They’ll also ask for evidence of key controls – so you’ll want to be able to demonstrate reviews, reconciliations and approvals. Keep evidence of what you do so you can take credit for it.

4. Reviews

Effective reviews can improve the fund’s internal controls, minimize errors and reduce risk, which can positively impact the auditor’s approach. Use a checklist to perform your accounting and financial statement review. A few items to consider include:

• Reconcile bank, broker and other investment statements to the general ledger
• Review each account balance and determine whether the balance is appropriate
• Verify marks for each investment
• Recalculate allocated income and expenses for one partner
• Ensure management fees and incentives are reasonable
• Assess the reasonableness of returns for each partner for each period
• Read the financial statements to ensure they are complete and accurate – including related party transactions, subsequent events and investment disclosures

5. Wrap Up

The last step is important to ensure a sense of success. Get it across the finish line. Set aside time to tackle the last list of open items, signing the management representation letter and reviewing the financial statements. Make sure any remaining questions are resolved. And while it’s fresh in your mind, communicate with the auditor about your experience, anything new you’re planning in the future and schedule your next check in.

The secret to a positive audit of investments experience is: Communicate, start early, keep organized records, perform effective reviews and wrap it up.

How Wipfli can help

Wipfli’s team is committed to providing financial services organizations with constant communication, value-driven consultation and education. Our specialized “Audit Analytics®” plans are customized to the unique risks in each organization, rather than a “one size fits all.” Learn more on our audit web page or, to see what additional services we provide, see our financial services web page.