How or when to select or change a fund audit firm for your hedge fund, CTA or other alternative investment business can seem like a daunting decision for any fund manager. However, it can be done with the right considerations and processes in place.
WHEN TO SELECT A HEDGE FUND AUDITOR
Many hedge fund managers are under the assumption that since fund audits are typically performed at year end that they don’t need to search for a fund auditor until much later. However, it’s actually in a hedge fund managers’ best interest to select their fund auditor as soon as a fund is launched (or before) – for many reasons:
It is very important for a newly launched hedge fund to partner with an auditor who will help guide the firm through the crucial start-up stage. If you’re thinking about switching fund auditors, your fund auditor can review what has been done and the current state of your business and make suggestions.
In either case, a good hedge fund auditor will work with a fund admin throughout the year, so that there are no surprises when audit time comes around and no headaches due to unforeseen auditing issues that can disrupt business and reputation.
HEDGE FUND AUDIT, TAX, AND COMPLIANCE EXPERTISE
A good hedge fund auditor can offer an added layer of legal and compliance protection to a fund by reviewing legal documents from a tax and accounting standpoint. Partnering with a fund auditor early allows the auditor to help a hedge fund manager avoid unnecessary administrative burdens through helpful suggestions, such as refining document language and ensuring that all compliance standards are met before the documents go to print.
An auditor that can provide not only auditing services, but tax preparation services and FINRA/CFTC/NFA compliance support can be an extremely valuable asset and trusted resource — both as a new hedge fund enters and works its way through the startup phases, but as it grows and matures.
INDUSTRY EXPERIENCE & REPUTATION
The reputation of your hedge fund auditor matters. Fund auditors with a good reputation in the industry can offer attentive and experienced service, particularly for a new hedge fund manager. When it comes to larger, institutional investors, showing that you have an auditor already in place demonstrates your commitment to managing client money, and is an advantage in raising capital and showing prospective investors the checks and balances you have in place.
A good hedge fund auditor can help a fund navigate through complex regulatory and industry changes that are inevitable, indirectly impacting a fund’s profitability. Boutique audit firms that have significant experience in the industry can usually offer more personalized service than a Big 4 firm, at a cost that is more attractive to a start-up or mid-tier fund.
Additionally, a fund administrator should select a hedge fund auditor who is registered with organizations such as the Public Company Accounting Oversight Board (PCAOB) and a member of the American Institute for Certified Public Accountants (AICPA).
To summarize, choosing a hedge fund auditor is a big decision and qualifications should be carefully weighed as they will act as a strategic partner and operational extension of the fund. By vetting and selecting an auditor now, a fund can receive all the necessary guidance and compliance oversight it needs to protect a fund throughout the year and to ensure an issue and headache-free year end.
Starting a Fund, CTA, or CPO?
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Michael Coglianese CPA P.C. specializes in serving the futures and securities industries (Funds, IBs, CTAs, CPOs, RIA, BD, and FCMs) for over 28 years, by providing auditing, tax, compliance, and registration services. Our clients range from the newly seeded funds to the well-established, multi-million dollar funds. Our firm is PCAOB and AICPA Certified Public Accountants.