Compliance & Regulation

Get close with your auditor in 2010

A group of accountants from Eisner offered their tips this week for getting through the next year-end audit: be in contact with your auditors throughout the year, and make sure you’ve got everything in writing.

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During a seminar this week covering the best ways to ensure an efficient private equity year-end audit, Eisner auditors stressed two important points: consistent communications with auditors and good documentation.

Anthony Minnefor, an audit partner in the firm’s New Jersey office, said that in his experience the most successful audits started with a detailed timetable of milestones. He added that it’s important for auditors to have a complete understanding as early as possible of what transpired during the year with portfolio companies and what valuation ramifications those events presented, so as to avoid 11th-hour problems.

Michael Aronow, a partner in Eisner’s corporate finance department, said LPs should also make sure to talk with their auditors all throughout the year, and not just wait until year-end. 

“The best way to look at it is to try and make the audit a non-event,” he said. “Have a lot of communication with the auditors, go through the issues all throughout the year as things come up, so when the actual audit comes up many of the issues are resolved and you are really just in a closing process.”

He also said auditors coming in on an interim basis can make things easier as well. 

“At the end of six months, we can look at six months of transactions, or we can start during September or October when things are slow for everybody,” he said. “That gives us a chance to maybe go into things a little more in-depth, and without the pressure of a deadline auditors can do six months’ worth of testing in November and December, so that there is only a limited amount of work left for everybody at year end.”

Regarding best practices for adequate documentation, Craig Goodman, partner in Eisner’s financial services group, said LPs should take care in documenting the facts of a transaction – what the initial investment was, how much money was involved, what the terms were – because that is what the auditors are going to ask for before they make any interpretation. Secondly, they should then overlay those facts onto the accounting rules.

“That’s where I usually see a breakdown, most [LPs] seem to know what they’ve acquired and what the terms are and the current status, but then they don’t know how to take those pieces of the puzzle [and fit them with] the accounting standards,” he said. “The other question we get is does the documentation have to be in writing? The answer is yes, because that is what the professional standards say. Those are the standards that we are held to when the Public Company Accounting Oversight Board comes in. The standard is: if it is not in writing, it didn’t happen. That’s why we always ask for things in writing.”