Posted on 30 April 2020

Five Questions CFOs Should Ask Themselves After the COVID-19 Year-End

2020 AR 011 - Patrick McCullagh (Year End Reporting) Article Banner


Every year, CFOs reflecting on year-end reporting think of things that could be done better. Inevitably practical issues arise, along with flaws in workflows and processes. Completing the year end is a process that depends on immaculate preparation, planning and communication.


But this year was different. Out of the blue, COVID-19 posed severe challenges. Working from home, staff had to quickly get technology in place, and work as a team despite not being in the office. Hard enough if everyone is in the same time zone, but even more difficult for those firms with people across multiple time zones.


More than ever, it’s a year when strong underlying technology, processes and service partner staff and experience matter. That makes it a good time for CFOs to review how their administrators performed and to reflect on planning and partnerships for 2021. The five questions we suggest CFOs ask themselves are:


1. Was the administrator helpful in supporting the audit with “info packs?” Did it charge extra?

Administrators play a vital role in supporting the audit. Notably, “info packs” containing the additional information needed to support and complete a fund’s accounts can be extensive; they are often used not only by the auditors but by fund controllers to facilitate their review of the numbers and can contain a mix of both supporting legal documentation and schedules detailing calculations.  General partners (GPs) are making more requests for additional services that would previously have been performed in-house. These include attending GP board meetings and assisting with year-end board papers.

While administrators always seek to support the audit, they are more likely to meet expectations if all support required is included in pre-scoped deliverables and well-defined administrator service level agreements. Planning for them from the outset minimizes the risk of due date overshoots and errors arising from rushed responses to ad-hoc queries. It also means there is no danger of extra fees needing to be applied.


2. Were the year-end net asset values (NAVs) produced accurately and on time?

Calculating NAVs is the acid test of the year end. Generally speaking, NAVs are accurate and on time, but there is inevitably some back and forth in the first year of an administrator’s appointment as both parties reach a common understanding of the methodology and contents of calculations. What’s more, if a fund holds private investments, a “final” NAV cannot usually be calculated immediately after the year end, as it takes time to finalise valuations and for the fund’s GP to approve them.
However, good advance planning minimizes delays and the risks of inaccuracy. This includes confirming the calculations to be made, knowing what assets/liabilities must be recognised and receiving all bank statements. Then a ‘close to final’ draft can be prepared as early as possible, often including a first cut of valuations even if they need to be adjusted later.

3. Were there detailed audit trails showing how the numbers were calculated and confirming their accuracy?

Supporting the numbers through audit trails is important. The level of detail can be significant if, for example, a real estate fund has a number of underlying special purpose vehicles holding individual buildings. Links have to be included to sources of information, such as legal documents. Again, clearly defining and agreeing what’s needed up front avoids problems later.

4. Were there clear processes or was it an "Excel mish-mash?"

Poor project planning inevitably leads to a stressful year end, putting pressure on a GP’s finance and administration departments. By contrast, a robust plan helps the audit to run smoothly. It’s important to have a mutual understanding of the key stakeholders and contacts, information flows and due dates, as well as the GP’s requirements regarding the form and content of “info packs” and reconciliations. Ideally, if there are interim quarterly audits then templates can be set up in advance and an approach to communications agreed. Even the best made plans experience the odd surprise, but thinking ahead helps to make the process painless.


5. Did the year-end consume much of the CFO’s time?

Year-ends always take some of the CFO’s time and 2019 had the additional challenge of the pandemic, even if it was a 2020 event. While the administrator can take care of 80% of the audit process, the client’s finance team has responsibility for areas such as the valuations that will be reported. However, experienced administrators can help finance teams by applying their sector expertise to explain those tricky areas that auditors usually like to scrutinise.
This year-end was performed under extremely difficult circumstances that will inevitably have led to more challenges than normal. But as CFOs ask themselves what could be done better, the broad lessons are likely to be the same as ever. A smooth year-end takes meticulous preparation, a robust project plan, and clear communication on what data is required in advance. Often, this equates to a strong partnership with an experienced administrator with knowledgeable staff and integrated technology and data.