AIF Registration

AIF Audit Checklist

Due to the changing business landscape in India, the role of the AIF audit checklist also has to evolve with the changing framework of the business cycles. AIF’s acronym is Alternative Investments Fund; unlike traditional stocks and investments, the AIF audit checklist is different as they are not publicly traded companies. AIF company usually collects funds from sophisticated investors and thus invests the same according to the defined investment policy.

SEBI (Securities and Exchange Board of India) is the regulatory board for Alternative Investment funds in India. However, AIF funds are not regulated under SEBI mutual fund regulations, 1996, SEBI Collective Investment schemes regulations, 1999, and any other fund management regulations.

AIF audit checklists are tailored to meet the requirements of high-net-worth individuals, investors, family offices, etc. AIF audit checklist efficiently assists organizations or businesses with a comprehensive investment opportunity. AIF generally offers more return than a traditional investment method. The AIF audit checklist has to be conducted diligently as it includes diverse investment portfolios that generate high returns and low correlation to traditional funds.

What is the meaning of Alternative Investment Fund?

Alternative investment funds are unlike traditional investment companies. AIF is an investment company that collects money from various other sophisticated private investors and hence helps the investors spread or diversify their investment holdings.

In India, Alternative Investment Funds can be formed as a company under the Companies Act,2013, LLP (Limited Liability Partnership, a body corporate, or a trust. Nowadays, AIF in India is growing rapidly because of the increased number of investors and its popularity.

AIF Audit Checklist Compliance Requirements in India.

1. The Alternate Investment Fund needs to be registered under the Securities and Exchange Board of India (SEBI).
2. AIF has to meet a minimum investment amount from the respective investors.
3. A concerned custodian has to be appointed as a safe keeper of securities.
4. A regular reporting to the Securities and Exchange Board of India (SEBI)
5. A minimum corpus of Rs.20 crore is to have with the category I AIFs.
6. AIF company is expected to fulfil the code of conduct according to the Securities and Exchange Board of India.

What are the steps for the AIF Audit checklist?

It is a great deal for an auditor to prepare the AIF audit checklist due to the increasing options of Alternate Investment fund companies due to its feature of generating higher returns. Thus, the auditor has to plan the AIF audit checklist very systematically so that AIF financial statements are not materially misstated.

The main objective of the AIF audit checklist is to mitigate risks, evaluate the risks, and design an assessment to prevent or reduce the risk involved with the respective Alternate Investment Funds. The most difficult task of the AIF audit checklist is the framing of the procedures to conduct the AIF audit checklist, and even more difficult is the collection of sufficient audit evidence adequately. Given below are the steps for the AIF audit checklist:

1. The concerned auditor must organize a meeting and conference with the AIF management team. The auditor shall enquire about and discuss the AIF investment portfolio strategies and assess any new alternative investments. In this stage, an auditor shall collect and review various new and old agreements on investments. This collection of documents will help the auditor of the AIF get all the insights and information about the Alternate Investment fund, such as investment plans, proposed commitments, withdrawal restrictions, and other additional capital commitments.
2. As we know, an AIF consists of a high-risk AIF audit checklist that has to be prepared only after having an independent confirmation with the respective AIF custodian, consultant, and investment manager.
3. Lastly, the auditor shall collect the financial audit of AIF of the last year and compare it with the current net asset value contained in the AIF financial statements and evaluate if any changes are to be made to arrive at a fair value.

Regulatory framework AIF Audit Checklist

 According to the Alternate Investment Funds master circular by SEBI (Securities and Exchange Board of India), the following regulatory compliance has to be followed to align with the PPM (Private Placement Memorandum).

1. The AIF audit checklist shall be conducted by the AIF internal and external auditor or any legal professional annually every year.
2. Every financial ending year, an AIF audit checklist shall be conducted by the concerned auditor in terms of PPM compliances. After an audit assessment, the auditor shall convey or communicate the findings and various corrective steps to the respective AIF board of directors, trustees, partners, upper management, and SEBI within a stipulated time of 6 months from the end of the financial year.
3. This compliance requirement for the AIF audit checklist does not apply to those Asset Investment Funds that have not raised any funds from their investors, though AIF who has taken funds from the respective investors shall submit a Chartered Accountant certificate to the effect that fund has not been raised from the investors within a stipulated period of 6 months from the end of the financial year.
4. One of the key objectives of the AIF audit checklist is to verify if the concerned Alternate Investment Fund company has complied with the tax regulations and compliances. However, each AIF company varies from category to category.
5. According to the Income Tax Act 1961, a unit holder or an investor in an AIF company will have to pay a double tax, and no tax will have to be paid by AIF on any income unless it is a business income or capital gains. In general, AIF, as a company, does not have to pay any tax, and it is only the unit holder who pays the tax.

Pre-Audit Preparation on AIF Audit Checklist

1. The AIF audit checklist shall start with the testing or checking of the AIF investment by comparing it with the net asset value lookback schedule and evaluating the various AIF agreements and subscriptions.
2. Secondly, the auditor shall include the monitoring service under the AIF audit checklist to regulate and track the respective AIF complexity in investment, strategy, and external investment advisors. It is indeed important to cross-check the credibility of the investment manager’s performance and the type of frequency and due diligence that is being generated in the AIF company.
3. An AIF company, through an AIF audit checklist, can set up distinctions on the various roles on who will perform what functions, such as a team of an investment committee and any external investment consultant.
4. A valuation testing has to be conducted by the auditor through the AIF audit checklist; in this process, the auditor chooses a fund of both high and risk to make sure that the auditing of AIF financial statements covers both complex and thus maintains an overall balance.
5. The list of items that are required for AIF valuation testing are AIF audit report fund, AIF ownership percentages, and statements of clients matching both fiscal year-end and fund year-end, fulfilling investment benchmark.
6. Lastly, after completing the evaluations of various documents and communications with the concerned upper management and investors of the organization, the auditor shall review the audit report after implementing the AIF audit checklist.
7. A correct fund statement is to be reviewed diligently, and an opinion, along with the recommendations, is to be made by the auditor after detecting the auditing standards if they have complied with the laws and regulations.

AIF audit checklist risk Assessment

For the AIF audit checklist, the auditor risk assessment depends on the various facts and circumstances but is not limited to the points given below:

1. Alternative investment funds are important in investors’ business financial statements. Here, the auditor under the AIF audit checklist shall check the size of the investor business and financial statements that are connected to the AIF. However, the auditor also has to examine the legal structure of the investor’s operations and the level of transparency within the concerned AIF company management.
2. A Classification of investors’ business operations or processes and internal control policies or regulations connected to the respective Alternative investment fund company are to be part of the AIF audit checklist. AIF audit checklist shall also ensure that the investor management is investing the funds according to the estimated fair value in the market. Risk assessment, according to the AIF audit checklist, ensures that the investors are efficiently operating without any misstatements in their financial statements.
3. Investor audit reports and information, including portfolio reports of the concerned investor of AIF company, shall be considered under the AIF audit checklist program.

It is the responsibility of the investor’s management team to have sufficient knowledge of the underlying investment to achieve an effective, fair value on the investment funds. It is indeed very important for investors to have complete knowledge of the alternate investment fund company where they are going to invest their funds. Therefore, the AIF audit checklist needs to maintain the portfolio documents very diligently; thus, the internal control of the company has to be maintained efficiently.

• Investors’ funds connected to AIF shall be evaluated or examined to understand the nature, complexity, and liquidity connected to the AIF investment portfolios.

AIF audit Checklist on diverse Accounting Requirements

1. AIF has to comply with several regulations to fulfil the required AIF accounting standards, such as GAAP (Generally Accepted Accounting Principles).
2. The AIF audit checklist also has to examine the performance of AIF financial statements and whether a tax has been paid regularly or not to be considered to maintain the accuracy of the internal control management of the AIF. All these factors are to be taken care of by the concerned auditor under the AIF audit checklist so that no misstatement of funds or errors occur before investors refuse to invest in a respective AIF.
3. If there is any change in the investor name, such data are to be instantly updated in the AIF accounting and reporting systems.
4. To avoid any error in the financial statements of the concerned AIF company, an auditor shall cross-check such statements to avoid unclarity reports.
5. The Alternate Investment fund company has to be kept updated with the changing regulations and compliances to stay relevant in the market and avoid any legal liabilities and penalties.

Why is AIF Compliance Important?

AIF’s non-compliance with the SEBI rules and regulations will result in various grave repercussions that AIF has to fulfil. A periodic report has to be fulfilled by the AIF as prescribed by the SEBI compliance and regulations. For a successful investment company, the company must build a strong reporting and disclosure framework to maintain a mature pillar for the growth of the financial market and securities. SEBI usually sends a notice of non-compliance with such regulatory frameworks.

It is also vital for the AFI company to maintain accuracy in reporting the account audit promptly so that transparency and accountability are always maintained between the concerned financial Investment company and the regulatory bodies. In this way, a company can maintain its integrity in the market.

A show cause notice from a SEBI to an Alternate Investment fund company is a kind of reminder that complying with the SEBI regulation on reporting and disclosure framework is important for any Alternate Fund Investment company; however, meeting these compliances and regulations helps the investor to maintain confidence, fair practices and integrity in the finance investment market.

Conclusion

The Accounting Firm Auditing Checklist has to ensure that the concerned AFI has complied with all the regulatory compliance to maintain the investment finance ecosystem to build confidence or trust between the respective company and stakeholders to make well-informed decisions to achieve overall stability and efficiency of the Alternate finance Investment company. Hence, the auditor, through the AFI auditing checklist, imposed a robust audit program and frameworks on disclosure and reporting by complying with the laws and regulations of the concerned authority. 

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