Book 1 of the C|A Audit Assistance Workbook (see resume)

1. cambridge associates, llc
Audit Assistance Workbook
ar l in gton | b oston | d a lla s | lon d on | me n lo pa r k | si ng apo re | sydney

2. audit assistance workbook
Table of Contents
introduction 3
How to use this workbook 5
workbook assembly instructions 7
guide to classification levels classification_levels_guide.pdf
Hedge Funds audit HF_worksheet.pdf
private equity audit pe_worksheet.pdf
cambridge associates, llc index

3. audit assistance workbook
Introduction
Welcome to the second edition of our Cambridge Associates Audit Assistance Workbook. We developed
the workbook in 2009 as part of our ongoing effort to help clients prepare for upcoming audits of their
alternative investment fund holdings. By way of history, in 2006, the American Institute of Certified Public
Accountants (AICPA) issued a practice aid to provide guidance for the auditing of alternative investments.
Since then, Cambridge Associates has issued several working papers to assist clients with their audits and
to clarify evolving accounting issues related to this topic:1
• Auditing Alternative Investments: An Endowment Investment Perspective
September 2006
• Endowments and Alternative Investments: Preparing for the Next Audit
June 2007
• “Mark to Market” Accounting: An Endowment’s Guide to the New Valuation (FAS 157)
October 2008
VALUATION STANDARDS HAVE BEEN DEFINED
In January 2009, an AICPA task force issued complex draft guidance that would have required investors
to adjust funds’ reported NAVs. In response to the many comments on this matter—including a detailed
comment from CA on behalf of our clients2 — the Financial Accounting Standards Board (FASB) decided
not to require investors to adjust their funds’ reported NAVs. Investors may use NAV as a practical
expedient, in most cases, to report the fair value of their alternative investments; however, FASB requires
new disclosures for each category of alternative investments. The effective date of this guidance is the
first annual or interim reporting period ending after December 15, 2009. Thus, the 2010 edition of the
Audit Assistance Workbook includes a suggested matrix for documenting these disclosures and a section
1. Cambridge Associates responded
listing criteria for using NAV as a practical expedient. on behalf of our clients. Visit the
client website to read our letter to
the AICPA.
2. In spring of 2010 we expect to
issue a report on new governance
guidelines, including expanded
disclosures mandated by FAS 117-
1, some of which might be included
in your audit resources.
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4. audit assistance workbook
Introduction
CAMBRIDGE ASSOCIATES’ AUDIT ASSISTANCE WORKBOOK
It is not our intention to provide specific accounting or legal advice. We encourage you to work with
the appropriate professionals for legal and accounting matters, and as with all accounting changes, we
strongly recommend that you consult with your auditors early and often about how the changes will affect
your financial statements.
Perhaps the most confusing change is the terminology. Fair value guidance is now called Topic 820
rather than FAS 157. We will add to this workbook as Topic 820 guidance evolves. In the meantime, this
workbook can be a starting point for conversations with your auditor.
Presenting your auditor with a clear process for gathering and examining information is a helpful first
step toward satisfying Topic 820-specific audit requirements. This workbook helps define critical items
clients should include as part of this process.
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5. audit assistance workbook
How to Use this Workbook
The workbook is a series of 4 PDFs: an Introduction, Hedge Funds (HF) worksheets, Private Equity (PE)
worksheets, and a Topic 820 (FAS 157) Guide to Classification Levels. Download each of these to your
hard drive (you will need an up-to-date version of Adobe Acrobat© available at http://get.adobe.com/
reader/).
Once you have downloaded all 4 PDFs, you can move easily from the Table of Contents (TOC, below) to
the HF and PE worksheets by clicking those items within the TOC.
At the front of the HF and PE worksheets, enter the specified information—manager and fund names
and share class—in the appropriate fields, and that information will auto-populate the headers/footers
of each page of the worksheets (obviating the need to hand label each page, of each completed set of
worksheets, with the manager/fund information).
Each PDF has built in functionality (more on that below). We divided the HF and PE worksheets into two
sections: (1) checklists, to help you identify materials you will want to gather before your audit, and (2)
worksheets, to help you organize the information you have gathered.
Like packing, your first step is to make a checklist of everything you will need; we’ve done this work
for you. The worksheets are a suitcase to hold notes for each item. Each line-item on the checklist
corresponds with a worksheet item. When you complete a worksheet item, you will check the associated
checkbox. Checking off an item on the worksheets automatically produces a check mark on the
correspondent checklists line-item—check marks automatically appear in both places.
We divided the checklists into initial and ongoing due diligence items. Question marks next to the
checkboxes provide “mouse-over” explanations of each item. Though you may not have all of the items,
check off those that you do have, and determine if you can obtain those that you are missing. If they are
simply unavailable or not applicable, you can indicate this in the space provided on the worksheets. Use
the worksheets, one set for each fund, to document the details of your due diligence process—dates and
times, caveats to address, missing items—in other words: circumstances, comments, and considerations.
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6. audit assistance workbook
How to Use this Workbook
Enter the fund’s classification level in the box provided within the worksheets section; mousing over
and clicking the words “Classification Level” will take users to the Topic 820 (FAS 157) Guide to
Classification Levels PDF. This guide is a suggested framework for approaching the development of
your own disclosure (classification) methodology. For all except separately managed accounts, portfolio
holdings should be classified at the fund level. Classifying holdings based upon the observability of their
pricing is a requirement that came into effect on December 31, 2008.
Clients should follow the guide for suggestions on how to think about hedge fund, private equity,
equity and fixed income investments in light of the Topic 820 (FAS 157) disclosure requirements. Keep in
mind that if you have a separate account, the guidelines require that you classify each of the underlying
holdings in that account. Your custodian may be able to help you classify the underlying holdings. In
addition to using a custodian that supplies this classification leveling service, investors who subscribe to
Cambridge Associates’ performance measurement services and, further, to portfolio analysis, may find
these useful for looking through to the holdings in separate accounts.1
As you complete HF and/or PE worksheets for each fund in your portfolio, title the completed PDFs (e.g.,
“Generic Fund IV”), and save the completed PDFs to your hard drive. For example: if you have 30 funds
in your portfolio, you should have 30 separately titled PDFs saved to your hard drive that document
your considerations for each item. You can print these and place them in a binder for your auditor.
(Alternatively you can use the checklist without the worksheets. Just check the boxes as you gather each
item using your own process.)
We stress that thorough due diligence is critical. Neither the checklists, worksheets nor the leveling guide
is substitute for a thorough due diligence process.
1. Without custodian assistance,
relying on these analytics is
preferred to simply attempting to
decipher custodian statements. C|A
offers a “Full Report” and a “Short
Report.” The former provides
additional detail on the individual
underlying portfolio companies.
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7. audit assistance workbook
Workbook Assembly Instructions
1 Download the appropriate blank worksheet template(s)—
Hedge Fund (HF) or Private Equity (PE)—found adjacent
to this introductory PDF under “Research Library” on the
2 Starting with the essentials checklist on page 1 of each worksheet,
complete and save a single worksheet for each fund in your portfolio.
client website.
Fund 1 Fund 2 Fund 3...
Hedge Funds Private Equity
Audit Worksheet Audit Worksheet
3 Fill out the binder cover document and print it and
all of your worksheets. 4 the top margin, insert into a 3-ring binder and submit to the auditor.
My Organization
Audit Worksheet My Organization
Audit Worksheet
Date
Date
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