A qualified professional known as a fund auditor performs audits. They accomplish this by examining invoices, financial records, and other documentation to ensure all balances and transactions have been accurately recorded, distributed, and accounted for. Once this process is complete, a fund audit report is prepared for distribution.
In Phoenix, Arizona, fund audit laws apply to various entities, such as city departments, school districts, charter schools, non-profit organizations, and special districts. These entities must undergo annual audits by independent certified public accountants (CPAs) who are approved by the Arizona Auditor General. The audits must follow generally accepted auditing standards (GAAS) and government auditing standards (GAS). This means they will include the following:
- Expenses, profits, and losses
- Compliance with laws and regulations
- Internal controls and decisions made by the fund
- Verification and evaluation of assets and liabilities
- Opinions from the auditor
Once complete, the audit reports must be submitted to the Arizona auditor general within nine months after the end of the fiscal year. The auditor general reviews the reports and issues a letter of certification or a letter of noncompliance. Additionally, the auditor general also publishes the reports on its website and distributes them to various stakeholders, such as the governor, the legislature, the state board of education, and the public. The auditor general may also conduct special audits or investigations if there are allegations of fraud, waste, abuse, or other mismanagement of public funds.
These reports pave the way for a better understanding of the fund portfolio, risks, and returns. Catching errors in a fund’s audited financial statements is important, because mistakes could potentially result in voided contracts. In addition, fund auditors are also able to identify areas for growth and improvement.
Note: Domestic hedge funds are not required to have annual audits unless the fund manager is a registered investment advisor with the Securities and Exchange Commission (SEC.) Depending on jurisdiction, offshore hedge funds may need audits.