How to Build Audit-Ready Financials for Your Hedge Fund

Introduction 

It’s two weeks before your hedge fund’s audit deadline. The auditors ask for supporting documentation on last year’s accruals. You can’t find the backup — the person who prepared it left months ago, and the files are scattered across multiple drives. 
Now the audit is delayed, fees are climbing, and your investor reporting schedule is slipping. 

This scenario happens more often than fund managers admit. 
Audit-ready financials are not about reacting during audit season. They are about designing systems, controls, and documentation so every number in your statements can be validated at any time. 

At Cartesian FinOp Partners, we help hedge funds build financial frameworks that withstand auditor scrutiny, meet GAAP requirements, provide a check-and-balance with the fund administrator and deliver investor confidence. 

Understanding Audit Requirements for Hedge Funds 

Why Audit Readiness Matters 

Audits serve three critical purposes in the hedge fund space: 

• Investor transparency — Validated financial statements build trust. 

• Regulatory oversight — Compliance with SEC, FCA, AIFMD, or other jurisdictional requirements – where applicable. 

• Operational risk mitigation — Strong controls prevent valuation errors, accuracy of monthly NAV, fee disputes, and compliance failures. 

Poor audit readiness leads to: 

• Delays in issuing audited statements to investors 

• Higher audit fees due to inefficiencies 

• Increased risk of post-audit findings or control deficiencies 

Why it matters for accounting, finance, operations, legal, and compliance 
Audit readiness integrates all five areas: accurate accounting and finance data supports operational workflows, legal documentation ensures enforceability, and compliance alignment meets regulator and investor requirements. 

Key Standards and Regulatory Expectations 

Most hedge funds prepare financial statements under GAAP. Key standards include: 

• ASC 820 — Fair Value Measurement (hierarchy levels, disclosure requirements) 

• Revenue recognition rules — Performance and management fees, dividends, interest 

• Disclosure guidance — Investment risks, valuation methodologies, related-party transactions 

Funds with global structures may need to reconcile with IFRS, which differs in: 

• Principles-based approach vs. GAAP’s rules-based framework 

• Recognition timing for certain assets and liabilities 

• Disclosure granularity 

Why it matters for accounting, finance, operations, legal, and compliance 
GAAP and IFRS define how financials must be prepared and disclosed, affecting accounting accuracy, financial analysis, operational workflows, legal adherence to investor agreements, and compliance with global regulators. 

Establishing Strong Internal Controls and Documentation 

Designing Control Environments 

An effective control environment ensures that financial data is accurate, complete, and secure. It begins with senior management, and is supported by a clear policy framework and documented procedures. At the operational level, this includes segregation of duties, defined approval hierarchies, change logs for tracking adjustments, and exception reporting to flag discrepancies. Finally, a structured monitoring and review process ensures these controls remain effective and are adapted as needed. 

Why it matters for accounting, finance, operations, legal, and compliance 
Controls protect accounting accuracy, safeguard financial assets, enforce operational governance, provide legally defensible oversight, and demonstrate compliance discipline to regulators. 

Reconciliation and Audit Trail Best Practices 

Reconciliations ensure your books match external records from administrators, custodians, and brokers. 
Audit trail best practices include: 

• Frequency: Daily for cash and securities monthly for portfolio and NAV. 

• Documentation: Retain an audit trail of all trade confirms via Order Management System (OMS), broker statements, and pricing source screenshots. 

• Clear sign-off: Every reconciliation reviewed and approved by someone other than the preparer. 

Why it matters for accounting, finance, operations, legal, and compliance 
Reconciliations directly protect financial statement integrity, improve operational efficiency, create defensible evidence for legal inquiries, and satisfy compliance audit requirements. 

Recordkeeping and Supporting Schedules 

Auditors need to trace every reported number back to source documentation. 

Sample Documentation Checklist 

Why it matters for accounting, finance, operations, legal, and compliance 
Complete documentation enables accurate accounting, supports financial analysis, ensures operational transparency, protects legal positions, and satisfies compliance review standards. 

Building the Audit Timeline and Checklist 

Pre-Audit Checklist 

In conjunction with the Fund Administrator:

• Trial balance and general ledger for the audit period 

• Investor statements and capital activity schedules 

• NAV support files for each reporting period 

• Reconciliation packages (cash, positions, accruals) 

• Pricing and valuation documentation 

• Copies of all contracts and agreements affecting financials 

Why it matters for accounting, finance, operations, legal, and compliance 
A structured timeline ensures accounting teams close accurately, finance teams analyze efficiently, operations run smoothly, legal documents are ready for review, and compliance deadlines are met. 

During Audit Coordination 

Smooth audit execution depends on: 

• Centralized request tracking — Log each auditor request, who is responsible, and due dates. 

• Management representation letter — Prepare to certify completeness and accuracy of information provided. 

• Clear points of contact — Assign one primary liaison to prevent miscommunication. 

Why it matters for accounting, finance, operations, legal, and compliance 
Centralized coordination ensures accounting consistency, protects financial deadlines, keeps operations aligned, ensures legal obligations are met, and maintains compliance control over the process. 

Post-Audit Follow-Up 

After the audit closes: 

• Review any audit adjustments and incorporate them into books. 

• Address recommendations in the management letter. 

• Update internal controls to prevent repeat issues. 

Why it matters for accounting, finance, operations, legal, and compliance 
Post-audit work closes accounting gaps, strengthens financial decision-making, improves operational controls, documents legal compliance, and enhances ongoing regulatory readiness. 

Tools and Technology for Audit Preparation 

Portfolio Accounting and Reconciliation Software 

Modern platforms: 

• Automate reconciliations 

• Maintain audit-friendly logs of changes and approvals 

• Generate standardized financial reporting packages 

Documentation Management and Version Control 

Best practices: 

• Use secure, shared repositories with controlled access. 

• Maintain version history so prior filings can be retrieved without confusion. 

• Set retention policies aligned with regulatory requirements. 

Why it matters for accounting, finance, operations, legal, and compliance 
Technology improves accounting efficiency, strengthens financial oversight, streamlines operational workflows, secures legal documentation, and provides a compliance-ready audit trail. 

Cartesian’s Role in Audit-Proofing Your Hedge Fund 

Designing Control Frameworks and Checklists 

We create custom audit readiness frameworks, covering: 

• Control mapping 

• Documentation standards 

• Month-end close procedures 

Supporting Documentation and Audit Coordination 

Our team: 

• Liaises with both, Fund Administrator and Auditor  

• Compiles and organizes deliverables 

• Interfaces directly with auditors 

• Manages follow-up actions from audit findings 

Why it matters for accounting, finance, operations, legal, and compliance 
Cartesian integrates accounting expertise, financial accuracy, operational discipline, legal readiness, and compliance assurance into every audit support engagement. 

Get Audit-Ready with Cartesian FinOp Partners 

Audit season shouldn’t be a scramble. 
Contact Cartesian FinOp Partners to design a control framework, build your documentation package, and manage your next audit with confidence.