casemark/managing-fund-audit-preparation

Managing Fund Audit Preparation

Structures fund audit preparation with financial statement drafting, confirmation management, and workpaper organization.

When To Use

• Annual or interim audit cycle is approaching and the fund administrator needs to organize deliverables for external auditors
• Drafting fund-level financial statements (statement of assets and liabilities, schedule of investments, statement of operations, statement of changes in net assets, financial highlights)
• Coordinating confirmation requests to custodians, counterparties, administrators, transfer agents, and prime brokers
• Assembling workpapers that tie trial balance line items to supporting documentation
• Responding to auditor PBC (Prepared by Client) request lists
• Preparing for first-year audits where no prior-period workpaper templates exist

Inputs To Gather

• PBC list from the external audit firm with specific deliverable deadlines
• Trial balance as of the audit period-end, broken out by fund/series/class
• Custodian and prime broker statements (month-end and year-end) for all accounts
• Trade blotters and transaction logs covering the audit period
• Partnership/operating agreement or offering memorandum for fee calculation terms, allocation methodology, and waterfall provisions
• Prior-year audited financials and management letter (if applicable)
• Capital activity records: subscription/redemption ledgers, capital call notices, distribution notices
• Side letter schedule summarizing any investor-specific terms affecting allocations or fees
• Valuation documentation: pricing sources, broker quotes, valuation committee minutes, Level 3 fair value memos
• Expense accrual schedules and vendor invoices for management fees, performance fees, legal, admin, and other fund expenses

Workflow

1. Parse the PBC list and build a deliverable tracker

   • Map each PBC item to an internal owner (accounting, operations, legal, compliance)
   • Assign target completion dates working backward from auditor fieldwork start
   • Flag items requiring third-party responses (confirmations, legal letters) and send requests immediately

2. Draft fund financial statements

   • Prepare the schedule of investments with security description, shares/par, cost, and fair value; group by asset class and geography [VERIFY: presentation format per fund's GAAP framework — US GAAP ASC 946 vs. IFRS]
   • Build the statement of assets and liabilities tying to the general ledger; reconcile cash, receivables, and payables to custodian records
   • Compile the statement of operations separating investment income, realized gains/losses, and unrealized appreciation/depreciation
   • Draft the statement of changes in net assets including capital contributions, withdrawals, income allocation, and ending balances per class/series
   • Calculate financial highlights (total return, expense ratios, portfolio turnover) per investor class [VERIFY: methodology per offering memorandum and applicable GAAP guidance]

3. Manage confirmation process

   • Send balance confirmations to each custodian, counterparty, and bank as of audit date
   • Track outstanding confirmations weekly; escalate non-responses at T+15 and T+30
   • For derivative and repo positions, confirm notional, collateral, and mark-to-market values with each counterparty
   • Obtain legal representation letters from fund counsel covering pending/threatened litigation

4. Organize workpapers

   • Create a workpaper index keyed to trial balance accounts and PBC line items
   • For each account: include lead schedule, supporting detail, and tie-out to source documents
   • Key workpapers to include:
     • Cash reconciliation (book to custodian to bank)
     • Investment roll-forward (beginning balance + purchases − sales ± realized G/L ± unrealized G/L = ending balance)
     • Fee calculations (management fee, incentive/performance fee with high-water mark or hurdle computation)
     • Capital account allocation schedules showing per-partner/per-investor allocation
     • Expense allocation methodology if multi-series or master-feeder structure

5. Conduct pre-audit quality review

   • Tie all financial statement line items back to the trial balance with zero unexplained differences
   • Cross-check footnote disclosures against actual activity (related-party transactions, subsequent events, commitments)
   • Verify NAV per share/unit reconciles to investor statements issued during the period
   • Confirm all confirmation responses received or alternative audit procedures documented

Output

• Deliverable tracker with PBC item, owner, status, and completion date
• Draft financial statements formatted per the fund's GAAP framework, ready for auditor review
• Confirmation log showing request dates, response dates, and reconciliation status for each counterparty
• Indexed workpaper binder (physical or electronic) with lead schedules, supporting details, and source document references
• Open items memo listing unresolved differences, pending confirmations, and items requiring auditor judgment

Quality Checks

• Every trial balance account has a corresponding workpaper; no orphaned balances
• Financial statement totals foot and cross-foot; net assets per the balance sheet equals net assets per the statement of changes
• Investment schedule fair values reconcile to custodian statements and pricing source records
• Fee calculations tie to governing document terms — recalculate management and performance fees independently [VERIFY: fee terms per LPA/offering memorandum]
• Capital account balances per the allocation schedule match investor capital statements and the general ledger
• All PBC items are either delivered or have documented expected delivery dates
• Subsequent events review covers the period from audit date through expected report issuance date [VERIFY: local GAAP subsequent events window requirements]
• Footnote disclosures for fair value hierarchy (Level 1/2/3) match the investment schedule classifications