Fund audits: Turning compliance into an operational advantage

Author: The Carta Team
Read time: 17 minutes
Published date: 3 April 2026

With the right support, private equity, private credit, and venture fund audits don’t have to be stressful or confusing. Learn about the annual fund audit process for private funds, including legal requirements and investor expectations.

What is a fund audit?

A fund audit is an independent examination of a fund's financial statements conducted by a third-party auditor for compliance with the applicable accounting framework (i.e., US GAAP or IFRS). The primary purpose of an audit is to verify that the fund’s general partners (GP) are operating in compliance with the rules established during fund formation in the limited partnership agreement (LPA). This agreement is the legal document that governs the relationship between the fund managers and the investors.

The audit also provides the fund’s investors, known as limited partners (LP), with an objective opinion on the material correctness of the fund’s financial statements and portfolio valuation. It serves as an important check to ensure that the financial information you provide to your investors is fair and accurate, fulfilling the auditor’s duty to protect investors through independent reports.

Venture capital fund audits

For a VC fund, investors might include friends and family, or more sophisticated investors (for example, pension funds, investment groups, trusts, government entities, or other external parties). Auditors perform audit procedures over the annual financial statements, which include the fund’s ownership and valuation of its portfolio companies (portco), net investment income, and allocations to investors.

Key audit procedures include:

• Verification of the existence and ownership of investments: Confirming that portcos are still active entities and determining the specific financial instruments (e.g., shares, convertible notes) held by the fund.
• Evaluation of portco valuations: Assessing the fair value of the fund's investments in portcos.
• Accuracy of management fees and carried interest calculations: Reviewing the calculations for management fees and carried interest attributed to the fund manager.
• Allocation of profits and losses to investors: Checking the accuracy of allocations made to limited partners.

Private equity fund audits

A PE fund audit covers all the same purposes as a VC fund audit does: It provides reasonable assurance to the investors on the financial information presented in the audited financial statements. Auditors apply the same procedures across PE and VC, allocating more time to each fund type's most complex areas (distributions for VC; debt/equity transactions for PE).

When are audits necessary?

For most funds, an annual audit is not an optional exercise. Funds typically conduct audits either because it’s required by law or because at least one LP requires it as a condition of their investment, serving as a critical check on your fund's operations and financial health. Think of it as a yearly health checkup for your fund that provides assurance to everyone involved.

Audits required by law

The U.S. Securities and Exchange Commission (SEC) is a government agency that regulates the capital markets, including the private funds sector. U.S. securities law requires people or firms that manage money for other people to register as investment advisers.

Audits required by investors

Beyond any legal mandates, the most common reason for a fund audit is the investors themselves. Many LPs—institutional investors that manage money on behalf of organizations—often require an annual audit as a condition of their investment.

Do you need an audit?

Private funds can be subject to annual audit requirements, which could be imposed due to regulatory requirements or fund governance agreements. Your own audit needs will ultimately depend on investor preference and regulatory requirements.

Private fund audit process

The audit is best understood not as a single event, but as a year-long cycle that requires continuous preparation and communication.

July/August: Finding an auditor

For funds whose fiscal year ends on December 31, audits generally begin in January and occur on an annual cycle.

Start of Q3: Contract a firm and begin interim testing

Ideally, you’ll engage an auditing firm by the start of Q3.

During Q3: Prepare documentation

Your auditors will also send a “provided by client” (PBC) information request list.

Q1: Valuation testing and auditing begins

Audits also usually begin in January.

End of March/Early April: Complete audits

The SEC’s deadline to complete audits for funds where the investment adviser is an RIA is 120 days after the fiscal year end.

What do auditors look for?

To evaluate your fund’s compliance with its LPA or SEC requirements, auditors will examine financial documentation and records, including invoices, bank statements, investment transactions, valuation support, management fees, capital calls, and distributions.

How to prepare for your annual audit

Being organized is the foundation of a smooth audit. Your auditors will request a core set of documents that can be broken down into two main categories: those related to the fund itself, and those related to the companies your fund has invested in.

Fund-level documents

Documents auditors will need from your fund include:

• Fund formation documents
• The fund’s governing documents
• Partner agreements
• Financial statements
• Service agreements with third parties

Portfolio company documents

Documents auditors need for evaluating portfolio investments include:

• A spreadsheet of contacts for each portco
• Updated portco cap tables
• Most recent financial statements for each portco
• Financing documents related to the most recent round of financing for each portco

Frequently asked questions about fund audits

How much does a fund audit cost?

Audit fees depend on your fund's size and complexity.

How does an audit for an SPV differ from a full fund audit?

An audit for a special purpose vehicle (SPV) is typically much simpler and less expensive than a fund audit.

What happens if auditors find an error?

An error is a specific misstatement in your financial records; auditors will flag the error, work with you to correct the figures.

What if auditors identify a material weakness?

A material weakness refers to a deficiency in your internal controls that creates a reasonable possibility of a material misstatement in your financial statements going undetected.

Can I change auditors if I'm not satisfied?

Yes, you can change audit firms if you are not satisfied with their service.