Financial Services
Organizations involved in managing, investing, lending, processing payments, or raising capital often face higher expectations around financial transparency and independent reporting. Even relatively small funds or financial services entities may be asked for audited financial statements as a condition of working with investors, lenders, custodians, administrators, or regulators.
If you’ve been asked for “audited financials,” or you’re unsure whether you need an audit, a review, or another form of independent financial reporting, this page explains what typically drives those requests and what organizations in this space should expect.
Different Types of Financial and Capital Raising Entities
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Investment Funds (Private Equity, Venture Capital, Real Estate Funds)
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Registered Investment Advisors (RIAs) & Wealth Managers
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Fintech Lenders, Payment Platforms, and Financial Technology Firms
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Family Offices & Investment Holding Companies
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SPVs & Deal Entities
Quick Audit Readiness Check (For financial services leaders)
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Are investment valuations documented and supportable?
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Are bank and custodian accounts reconciled regularly?
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Are capital contributions, distributions, and fees clearly tracked?
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Are related-party transactions identified and documented?
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Is the entity structure and ownership clearly documented?
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Do we know which systems generate our financial reports?
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Are access rights to accounting, portfolio, and payment systems reviewed periodically?
Audit vs Review vs Compilation — Plain English
Compilation
Financial statements are prepared from management’s records. No assurance is provided, and no independent verification is performed.
Review
A review provides limited assurance through analytical procedures and inquiries. It does not involve detailed testing of transactions or balances. Reviews may be accepted for smaller entities but do not often meet needs of institutional investors or counter parties.
Audit
An audit provides the highest level of assurance and involves independent verification of selected balances, transactions, and controls. Audits are commonly expected by investors, fund documents, and counterparties in the financial services and capital-raising space due to the reliance placed on reported financial information.
The appropriate level of assurance depends on investor expectations, governance arrangements, regulatory context, and the nature of transactions being undertaken.
Not Sure What Level of Independent Reporting Is Appropriate?
If you’re unsure what level of reporting investors, lenders, or counterparties expect, a short readiness discussion can help clarify expectations and preparation needs before committing to a formal engagement.
Jedidiah CPA works with funds, investment entities, and capital-raising organizations operating in environments shaped by investor expectations, regulatory scrutiny, and technology-driven processes. Our experience includes supporting organizations as they prepare for audit requirements associated with fundraising, governance, and transaction readiness, with an appreciation for the operational and systems-driven nature of modern financial services.
For those who would like additional background, you can review the lead partner’s professional experience and selected client feedback:
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Do Financial Services Entities Always Need an Audit?
Not all financial services or capital-raising entities are legally required to have audits. In practice, however, audits are frequently expected due to:
- Investor or limited partner reporting expectations
- Custodian, administrator, or counterparty requirements
- Bank or credit facility covenants
- Regulatory or licensing considerations (depending on structure)
- Preparation for capital raises, acquisitions, or exits
In many cases, audited financial statements are not mandated by law but are expected by stakeholders as a baseline of credibility and governance.
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Common Situations That Trigger Audit Requirements
Audit requirements commonly arise when organizations:
- Launch a new investment fund, SPV, or holding entity
- Begin raising capital from external investors
- Onboard third-party administrators, custodians, or payment processors
- Seek bank financing or credit facilities
- Prepare for regulatory examinations, due diligence, or transaction activity
- Grow to a point where informal financial reporting is no longer sufficient
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Practical Scenarios Commonly Seen
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You are preparing for an initial close on a fund and prospective investors are requesting audited financial statements before committing capital.
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A fund administrator, custodian, or prime broker has requested audited financial statements as part of onboarding or ongoing reporting requirements.
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You are exploring a transaction, strategic partnership, or sale, and due diligence is revealing that your financial reporting processes are not yet formalized.
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Your organization has grown quickly, and internal systems and controls have not kept pace with the complexity of transactions now being processed.
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Key Areas Commonly Examined in Audits and Reviews
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Valuation of investments and financial instruments
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Existence and ownership of assets
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Revenue recognition and fee income
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Related-party transactions and conflicts of interest
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Internal controls over cash movements and transaction processing
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Completeness and accuracy of investor capital accounts
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Liquidity and going-concern considerations
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Reliability of financial systems and data used for reporting
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User access controls and segregation of duties within financial systems
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Dependence on third-party platforms (administrators, custodians, payment processors, portfolio systems)
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The Role of Technology and Data in Financial Services Audits
Financial services entities rely heavily on portfolio systems, trading platforms, payment processors, fund administrators, and cloud-based accounting tools.
While a financial statement audit is not a cybersecurity or IT audit, auditors consider whether:
- Financial data is generated from reliable systems
- Access to systems is appropriately restricted and reviewed
- Key reports used for financial reporting are complete and accurate
- Third-party service providers performing critical financial functions are understood and appropriately governed
Weaknesses in these areas increase audit risk and can affect the level of reliance placed on system-generated data.
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What Can Go Wrong When Financial Reporting Is Not Ready
- Delays in fundraising or transaction closings
- Investor concerns over transparency or governance
- Increased scrutiny during due diligence or regulatory examinations
- Higher audit costs due to late adjustments or missing documentation
- Erosion of confidence among investors, lenders, or counterparties
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What the Process Typically Looks Like
1. Planning and scoping – understanding the business model, valuation processes, compliance and funding arrangements
2. Risk assessment –(including valuation, liquidity, compliance, and technology-related risk)
3. Fieldwork – testing selected balances, contracts, transactions, and system-generated reports
4. Discussion of observations – communicating matters identified during the engagement and practical implications for governance and reporting
5. Reporting – issuance of audit or review reports for investors, lenders, and other stakeholders
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Not Seeing Your Exact Situation Here?
Many organizations do not fit neatly into a single category. Some operate across sectors, use emerging business models, or combine elements of different operating models.
A short audit readiness discussion can help determine what level of independent reporting may be appropriate based on your structure, funding sources, and stakeholder expectations — even if your organization does not match any single example on this page.
