How Should an Investor Assess the Independence of a Fund's Auditor?

An independent auditor's work is useful when you can confirm who performed it and understand the relationship's scope. Find the firm's contact details independently, then ask about its ties to the fund and what its report covers.

Confirm the Firm and Engagement

Call the audit firm's own switchboard or use another contact channel you sourced independently. Ask whether the named professional works there and whether the firm audited the specific fund entity for the period shown. A manager's name and phone number alone do not confirm this. Richard has described calling the firm's main number and asking to be transferred as a practical way to check that a contact is genuine.

Request the signed audit report and engagement letter, subject to appropriate confidentiality terms. Check which financial statements and period the engagement covered, which entities it included, and whether the report was final. If the fund uses parallel vehicles, feeders, or special purpose entities, ask which were in the audit scope and which were excluded.

Map Other Services and Relationships

Ask the manager to list services the audit firm and its affiliates provide to the fund, manager, owners, or related entities. Request fees by service category and the period covered. The firm may do tax or consulting work alongside the audit. That alone does not establish a problem, but you need to understand the relationship and the safeguards for potential conflicts.

• "What services did your audit firm or its affiliates provide to the manager or related parties?"
• "How are audit fees and other fees approved and reviewed?"
• "Has the audit firm's relationship with the fund changed? What prompted the change?"
• "Can the auditor confirm the engagement directly, subject to its confidentiality rules?"

Ask how long the firm has served and whether the lead engagement professional has changed. A long relationship is a reason to ask about safeguards and fresh review. It does not prove independence is impaired. A change in auditor also needs a clear explanation, especially if it coincides with a disagreement or restatement. Ask whether a reporting delay was involved.

Read the Opinion With Its Boundaries in Mind

Review the opinion and notes with an accountant who understands fund reporting. Ask about any emphasis or qualification, what the auditor tested, and which material estimates required judgment. Find out whether a scope limitation affected the work. An audit opinion addresses the financial statements under the stated accounting framework. It does not mean every asset value is certain, every control works, or every manager claim has been confirmed.

Compare the report's scope with the fund's structure and your question. For example, an audit of a fund entity may not cover an affiliated manager's books or every underlying investment. Ask for a written scope explanation if the boundaries are unclear. The related question on what to examine in audited financial statements covers the statements and notes themselves.

Resolve Gaps Before Relying on the Report

Record the engagement period and entities covered. Note the services identified and any unanswered questions. A qualified accountant can assess technical accounting concerns or independence concerns. Ask your attorney about access rights and confidentiality limits. Review the fund documents with them. If the manager will not permit reasonable confirmation or the auditor's identity cannot be established, treat that as an unresolved diligence issue. For a broader review of segregation and oversight, see signs of weak financial controls.

Checklist

• Confirm the auditor using independently sourced contact details.
• Match the signed report to the fund entity and reporting period.
• Request the engagement letter and note exclusions from scope.
• List other services and affiliate relationships. Record related fees.
• Ask about auditor changes and qualifications. Check scope limits.
• Document open questions and get specialist review where needed.

Read next: How can an investor tell when a diligence provider has a conflict of interest?

One of the tricks that we like to do is you don't call that guy directly, you call the switchboard at KPMG and you say does so and so work here

Sources: Family Office Club investor due diligence framework, The Family Office Book. Informational only, not financial, legal or tax advice.