Chapter 6 - Fund Accounting Flashcards
Importance of fund accounts
Accounts are an important document for the fund - they are a means of communicating performance to the investor and regulators
Key document for investors existing and new investors - when considering the performance of the fund
Role of the fund accountant
Fund admin plays a key role before the fund accountant gets involved - they maintain the records of the fund
Fund admin will rely on the input of the fund administrator as they are closer to the day to day activities of the fund than the accountant is
Many fund admin firms have inhouse accounts team - where this function is delegated out it should be governed by a service level agreement
Fund accountant is responsible for bookkeeping all the movements of the fund - clears any discrepancies with the help of the fund administrator
Reviews minutes etc to get a feel for transactions and activities of the fund - oversight ensure all transactions dealt with accordingly
Produces financial statements of management accounts as frequently as necessary
Provided analysis on any trends identified during the prep of financial statements - may even be invited to attend board meetings to provide their analysis
Their analysis will be useful to the governing body in their decision making process
Mutual fund - accounts specifics
All expenses deducted from the fund’s assets
Investors are entitled to their share of the fund but only on wind up
If they want to exist they can always redeem or sell their shares
Investors receive dividends - which they can opt to re-invest into the fund
Investors have to report the dividends paid to them on their tax return
Accountant or administrator calculates NAV often on a daily basis
Mutual funds will have a large volume of transactions - both in terms of investor movements (open ended) and underlying investment movement
Private equity fund accounting specifics
Accounting tends to be unique due to nature of underlying investments which tend to be varied and illiquid
Complex valuation techniques for underlying investments - investments need to be valued at ‘fair value’
The accounting treatment will impact how commitments are treated
The degree of equity and management control over the assets will determine the accounting treatment
Terms in relation to fund duration, settlement of expenses, extension and profit sharing will be detailed in the LP agreement
Real estate fund accounting specifics
Accounting is similar to that of a private equity fund since the underlying investment spend to be quite illiquid also
Valuations can also be difficult particularly with a development property
Valuations will be carried out by an expert rather than the accountant
Hedge fund accounting specifics
Accounting for hedge funds is quite complex due to the nature of the financial instruments underlying - argued that ‘‘tis should only be done by specialists
Financial statements are examined alongside NAV for a better idea of overall performance of the fund
Key stages of fund accounts production
Accountant will undertake a review of all the minutes for the period of the accounts - get a feel of the activity of the fund
Review of bank reconciliations and ensure that they have all been carried out
When reviewing the transactions - accountant should always consider if the transactions appear reasonable given their understanding of the fund
General ledger is reconciled against the purchase and sales and redemption and subscription ledgers - any discrepancies identified are discussed with the administration team
Any additional creditors and debtors are book-kept - accruals and any prepayments
Based on external valuations the investment valuation figure is updated
Updates due to any foreign exchange differences etc are book-kept
Trial balance is produced and put into the format of financial statements
Notes and disclosures are updated to account for any events which have taken place during the period of the accounts
Chairmans statement, account statement etc are drafted and added to the financial statements
Financial statements are reviving by senior management
Tax return is prepared based on the figures in the financial statements
If an audit is required the accountant will often deal with this process also
