Best Practices for Fund Managers: Getting Ready for Audit and Tax Deadlines

Investment Fund Best Practices, Part Two

As the old adage goes, “Success is 90 percent preparation and 10 percent execution.”

As the year draws to an end, you can help reduce stress and improve results during the upcoming audit and tax season by taking steps now to improve your fund’s processes and procedures. Active planning now can save you time and money and prevent unnecessary frustration later when the audit and tax season are in full swing.

This article outlines five steps you can take during the interim period between now and the end of the year to help facilitate a smooth audit and tax process after the new year. It assumes you have already selected your accounting firm. If you need help with this, please refer to the article found here.

Step One: Schedule a Meeting with Your Audit and Tax Teams

Turnover in accounting firms is not unusual. However, if it impacts your audit and tax process, it becomes something you need to address. Requesting to meet with the team beforehand is always a good idea. Don’t hesitate to inquire about the team’s background and experience with funds like yours, because their lack of experience can translate into additional work for you if you need to bring them up to speed on your industry and fund strategy. Meeting with the team also helps establish rapport and ensure that any communication preferences are nailed down at the beginning of the engagement. This also is a good time to discuss any significant changes to the fund that may impact the audit or tax process and to get the team’s input on accounting and tax treatment.

Step Two: Establish a Timeline for Deliverables

Establishing a timeline for deliverables that all parties agree on at the outset helps set expectations when working with your administrator, valuation firm, and audit and tax teams. It also enables you to hold the different teams accountable for their responsibilities. Ideally, the audit team or fund administrator should be quarterbacking the process.

Step Three: Complete Valuations and Financial Statement Reviews

If you have illiquid or hard-to-value (also known as Level 3) investments in your portfolio, ask your auditors to review and get comfortable with your valuation methodologies, approaches and assumptions during the fall, or interim period. This avoids having to do this as part of year-end procedures. If the auditors use their own specialists for these types of investments, request that they submit the information to the specialists during the interim period. This will reduce the chances of last minute surprises related to valuations at year-end and will help make this aspect of the audit as painless as possible.

If you have a new fund audit or are switching auditors, also ask the auditors to review and sign off on the financial statement footnote disclosures and presentation during the interim. This also will help expedite the year-end financial statement preparation process.

Step Four: Get the Most Out of Interim Testing

Each accounting firm has its own standard interim testing procedures to help reduce unnecessary work and pressure once the calendar turns to busy season. These are some of the interim testing procedures Weaver recommends:

• Testing realized gain/loss activity to date
• Investment activity testing for closed-ended funds
• Capital activity and allocation testing
• Material income and expense line item testing
• Confirmation preparation

If your auditors are not performing these testing procedures during the interim period, you may want to consider suggesting they do so.

Step Five: Schedule Regular Status Update Calls

Staying on top of the audit and tax team’s progress is essential to ensure its timely completion. For larger engagements that involve multiple funds, we have found that scheduling regular calls to discuss the status of the services as well as any issues and/or open items will help everyone adhere to the original deliverable timelines. Any deviations can be addressed proactively and timely to avoid last minute surprises.

By following these steps, you can rest easy knowing you have helped lay the groundwork for an easier audit and tax season, and focus on the things that are especially important this time of year: family, friends and the holidays!

If you’d like a more extensive list or a checklist to help facilitate the above, contact us today.

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