Audit
An audit is an independent examination of a fund or entity’s financial statements and supporting controls.
Allocator relevance: A core verification tool that strengthens institutional trust, reporting reliability, and operational diligence outcomes.
Expanded Definition
Audits validate whether financial statements fairly represent an entity’s financial position under applicable accounting standards. In private funds, audited financials are often expected annually and serve as a credibility baseline for LP reporting and governance.
Audit quality depends not only on the auditor’s rigor but also on administrator processes, valuation policy discipline, and the underlying data lineage supporting financial statements.
How It Works in Practice
Funds engage external auditors and typically publish audited statements as part of an annual reporting package. Timeliness and consistency are meaningful diligence signals, especially for emerging managers.
Decision Authority and Governance
Audit readiness reflects operational maturity: reconciliations, custody controls, valuation committees, and documented policies. Weak audit processes can indicate broader weaknesses in reporting integrity and governance.
Common Misconceptions
- An audit guarantees there is no operational risk.
- All audits provide the same level of assurance.
- Audit completion timing is a minor detail.
Key Takeaways
- Audits reduce verification risk and increase LP confidence.
- Administrator and valuation discipline influence audit outcomes.
- Timely audited reporting is an institutional quality marker.