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.

Audits required by law

The U.S. Securities and Exchange Commission (SEC) requires firms that manage money for others to register as investment advisers. Once a firm must register as an investment adviser, it must begin conducting regular audits. The SEC also requires that any fund advised by a registered investment adviser (RIA) undergoes an annual audit.

Funds that receive capital from government bodies face mandatory audit requirements. If your fund is licensed as a Small Business Investment Company (SBIC) under the Small Business Administration (SBA), or as a Specialized Small Business Investment Company (SSBIC), federal regulations require annual audited financial statements.

Audits required by investors

Many LPs— institutional investors that manage money on behalf of organizations—often require an annual audit as a condition of their investment for risk assessment and mitigation, and reputation preservation.

Private fund audit process

The audit is best understood as a year-long cycle requiring continuous preparation and communication. For a fund with a December 31 year-end, the timeline is broken down into the following phases:

July/August: Finding an auditor

Start of Q3: Contract a firm and begin interim testing

During Q3: Prepare documentation

Q1: Valuation testing and auditing begins

End of March/Early April: Complete audits

What do auditors look for?

To evaluate your fund’s compliance with its LPA or SEC requirements, auditors will examine financial documentation and records. They’ll look at some of the following information:

• Invoices
• Bank statements
• Investment transactions, including executed agreements
• Valuation support

How to prepare for your annual audit

You can turn the annual audit into a smooth, repeatable process. A proactive approach centered on organization, clear documentation, and open communication is key to a successful and less difficult audit experience.

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?

If auditors identify an error, it should be treated as an opportunity to improve rather than a cause for alarm. The auditor will flag the error, work with you to correct the affected figures, and issue a management letter with recommendations.

What if auditors identify a material weakness?

If auditors identify a material weakness, your fund will need to develop a remediation plan and demonstrate that the weakness has been addressed before the next audit cycle.

Can I change auditors if I'm not satisfied?

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