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Five Simple Steps Key Venture Capital Staff Can Take to Support a Successful Audit

Article
Weaver's Danielle Darley lists five key steps that general partners or operations team members can take to ensure a successful audit.
5 minute read
December 14, 2022

I often work with general partners or operations team members of venture capital funds who are unsure about their role in the financial statement audit process. They typically do not have an accounting background and may never have been involved with an audit process. They often assume the third party administrator (TPA) will handle the entire process with the auditor.

A hands-off approach by the General Partner is not recommended. Without some involvement from the General Partner or operations staff, deadlines for audit milestones may pass or key information may not be communicated. This can lead to a fire drill before the audit deadline or, even worse, a missed reporting deadline. The consequences can be serious. Missing reporting deadlines or otherwise not meeting investor expectations can result in reputational damage.

This can easily be avoided. With a few simple steps, general partners or operations team members can help ensure that the audit progresses towards a timely completion. Here are some key steps to ensuring a successful audit:

Create and agree on a time line. Good preparation begins with a realistic plan so that everyone knows what to expect and when as well as who the responsible party is. The timeline should include dates for the following key audit milestones:

Establish a Valuation Policy. Generally, venture capital investments are held at the last round of financing, but there are some nuances. It’s important to think through the investment portfolio and consider whether there are outliers that need special consideration.

The valuation policy should address:

Discuss deviations from your policy with the auditor. If you run into something outside the box, reach out to your auditor to discuss. Your auditor is likely to have run into a similar situation and can guide you through how to consider the impact on the valuation.

Perform an effective review of the TPA package and financial statements. The key elements of the review include:

TPA Package

Financial Statements

Ensure your Request List responsibilities are aligned.

Don’t assume no news is good news. Check in on adherence to timeline. Check in with TPA/Auditor if you are unsure whether any milestones on the timeline have been met.

It’s important to respond timely to any auditor requests. Audit teams have tight schedules for completion of audits. Teams may need to move to another audit if there are delays in responses or lack of adherence to the timeline, which could ultimately delay the timely issuance of your audit.

By taking these steps, you can protect yourself and your organization from reputational damage or other negative consequences of missing the deadline for completion of your audit. For assistance with any of these processes, contact us. We are here to help.

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