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Industry — Investment Funds

Audit & Assurance for
Private Equity & Hedge Funds

We provide GAAP-compliant annual fund audits, NAV verification, capital account reporting, and LP-ready financial statements that meet the expectations of sophisticated investors and satisfy SEC and CFTC disclosure requirements.

Overview

High-Scrutiny Audits for Investment Fund Managers

Private equity funds and hedge funds operate in an environment where institutional investors, fund administrators, and regulators demand precision. LPs — pension funds, endowments, family offices, and sovereign wealth funds — rely on audited financial statements to verify the accuracy of NAV calculations, confirm capital account balances, and evaluate the fund manager's adherence to the partnership agreement.

Fund audits are also a regulatory expectation. SEC-registered investment advisers with custody of client assets (which includes most PE and hedge fund managers under the Investment Advisers Act) are subject to the Custody Rule, which requires annual surprise examinations or audited financial statements distributed to investors within 120 days of fiscal year end for pooled vehicles.

We audit single-fund structures and complex multi-vehicle arrangements — master-feeder funds, parallel funds, co-investment vehicles, and fund-of-funds. Our team understands the investment structures, accounting models (ASC 946), and disclosure requirements that govern investment company financial reporting.

Annual fund audits under US GAAP (ASC 946 — Investment Company accounting)
Fair value testing of Level 1, 2, and 3 investments
NAV verification and capital account reconciliation
LP-ready financial statements and distribution to investors
SEC Custody Rule compliance (120-day and 180-day deadlines)
CFTC / NFA reporting for commodity pool operators
Management fee and carried interest testing
Waterfall distribution verification
Fund-of-funds and master-feeder structure audits
Private equity
What We Audit

Key Areas of Focus in a Fund Audit

Fair Value Measurement (ASC 820)

We test the fair value of portfolio investments at all three levels of the fair value hierarchy — quoted prices, observable inputs, and unobservable inputs (Level 3). For Level 3 assets, we evaluate management's valuation models, assumptions, and the reasonableness of significant unobservable inputs including discount rates and EBITDA multiples.

Capital Account Reconciliation

We reconcile LP capital accounts from beginning to end of period, verifying contributions, distributions, allocation of income and loss, and the application of the waterfall and carried interest provisions of the partnership agreement.

Management Fees & Carried Interest

We test management fee calculations against the limited partnership agreement, verify fee offsets and credit provisions, and audit carried interest allocations to ensure they comply with the fund documents and reflect actual economic arrangements.

Investor Capital Calls & Distributions

We test capital call notices against LP commitments, verify that distributions comply with the waterfall provisions and the preferred return hurdle, and confirm that return-of-capital and carry distributions are appropriately sequenced.

ASC 946 Financial Reporting

Investment company accounting under ASC 946 has specific requirements for the statement of assets and liabilities, statement of operations, statement of changes in net assets, and financial highlights. We ensure your fund financial statements comply fully with these requirements and the related GAAP disclosure obligations.

SEC Custody Rule Compliance

We assist SEC-registered advisers in meeting the Custody Rule's audit requirement — issuing audited financials within the 120-day (or 180-day for funds-of-funds) deadline and confirming that statements are distributed to all investors within the required timeframe.

FAQ

Common Questions

What is the SEC Custody Rule and how does it apply to our fund?
SEC Rule 206(4)-2 (the Custody Rule) requires registered investment advisers who have custody of client assets to undergo annual surprise examinations by an independent accountant — unless they qualify for the "audit exception," which requires audited financial statements to be prepared in accordance with GAAP and distributed to all investors within 120 days of fiscal year end (180 days for fund-of-funds). Most PE and hedge fund managers use the audit exception and engage us to conduct the annual fund audit on the required timeline.
How do you audit Level 3 investments where no market price exists?
Level 3 investments (private equity portfolio companies, illiquid assets) are valued using management's models. We evaluate the appropriateness of the valuation methodology (DCF, EV/EBITDA multiples, recent transaction price), independently assess key assumptions including discount rates, projected cash flows, and comparable company multiples, and assess whether the resulting fair values are reasonable given the available evidence. We also review consistency with IPEV Valuation Guidelines where applicable.
Can you audit a fund structured as a master-feeder?
Yes. We have experience auditing master-feeder structures, conducting audits at both the master fund and feeder fund levels, and ensuring that the allocation of master fund income, gains, losses, and expenses to each feeder is properly calculated and disclosed in the feeder fund financial statements.

Ready to Discuss Your Fund Audit?

We work within your investor reporting timeline and deliver LP-ready financial statements that meet the highest institutional standards.

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