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Alternative Market Briefing

Other Voices: A recap on some audit issues, and a worrying trend

Monday, June 07, 2010

This article was authored by Castle Hall Alternative, a provider of operational due diligence based in Canada.

Looking back over our posts over the past year or so, we've commented on a number of issues which impact investors' due diligence procedures when thinking about the audit process, the financial statements, and the auditor themselves.

We thought it would be useful to recap on a group of issues which continue to be troubling:

1) And why can't the auditor identify themselves? Back in November, we commented on the challenge of getting the Big 4 audit firms to admit that they are, actually, the auditor of the fund in question. In the six months since then, practices appear to have standardized: typically, the Big 4 will now provide a form response, but only after the investor has signed an extensive disclaimer letter. The slight snag? The disclaimer is usually so wide ranging that it appears to materially impact the investors' ability to sue the auditor in the event of audit failure (which, of course, is the idea). We advise our clients not to sign it.

As a counterpoint, it is worth noting - and forcefully reminding the Big 4 - that every other auditor on the planet makes the confirmation process smooth and effective. Castle Hall is particularly appreciative of the responsiveness and professionalism of Rothstein Kass each time we make an audit confirm......................

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