Liquidation Basis of Accounting

Brencourt advisors liquidating hedge funds

Hedge funds are one category among several types of alternative investments that broadly include anything that is not a stock or bond. Presentation of Financial Statements. In a world where transparency is now expected, investors are most concerned with how much cash will be available to them once the fund is terminated and how long it will take to receive this cash. That being said, in certain situations fair value may approximate the amount expected to be collected.

Verify that management or other fees are permitted to be charged to the fund during the liquidation period. The final audit is usually completed prior to the final distribution of assets to the remaining investors in the fund. Hedge funds have dropped fees and the minimum amounts clients can invest, offering wealthy individuals an easier point of entry.

The type and amount of expenses and income accrued in the statement of changes in net assets in liquidation. It should not include the results of operations during the going concern period, but only changes to net assets that occurred during the period since liquidation became imminent.

Fund managers considering liquidation need to be aware and evaluate the impact the guidance above would have on their funds. But liquidity brings drawbacks. The Amendment was issued in April to clarify when and how an entity should apply the liquidation basis of accounting.

Fund managers and their auditors would frequently grapple with the presentation of financial statements for liquidating funds. Fair market value assumes disposition in an orderly manner, whereas recoverable cash value could be a distressed sale or a disorderly transaction. If a plan for liquidation was specified in the fund's governing documents at inception i. Hedge fund managers are more restricted in the ways they can use capital in a liquid vehicle, which ultimately hurts performance. Inform investors that the fund will be liquidating and the steps being taken before the final liquidation is complete.

The estimated costs to dispose of those assets or liabilities should be accrued for upon date of adoption. The expected duration of the liquidation process. That being said, it would still be necessary to determine the initial net asset balance upon adoption of liquidation basis. However, a limited-life fund would not be required to adopt liquidation basis unless the fund deviates from the liquidation plan originally stipulated in the governing documents.

The final audit is

The additional disclosures, along with the amended presentation of the financial statements, should alleviate investor concerns upon the liquidation of the fund. Furthermore, remaining investments will no longer be valued at fair market value, but rather at their recoverable cash value. In addition, any other costs and income that a fund expects to incur or earn should be accrued for through the date at which the fund expects to complete its liquidation.

Upon the determination of imminent liquidation, ensure that the liquidation plan is pursuant to the fund's governing documents. The attorney, in particular, will be able to help guide the manager through any potential legal issues that may arise.

The specific provision would apply when a fund determines that liquidation is imminent. Estimate all income to be earned and expenses that will be incurred during the liquidation period.

Verify that management