the private equity tax and accounting forum · pdf filethe private equity tax and accounting...
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December 5th
The Private Equity Tax and Accounting Forum Ensuring absolute tax efficiency and compliance in a rapidly changing environment
New York
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Thank You
Proudly Presents
Financial Research AssociatesProudly Presents
The Private Equity Tax and Accounting
Forum
December 5, 2016 The Princeton Club,
NYC
Presents
The Private Equity Tax and Accounting Forum Ensuring absolute tax efficiency and compliance in a rapidly changing environment
December 5th, 2016
The Princeton Club, New York, NY
8:00 Registration and Continental Breakfast
Private Equity Tax Private Equity Accounting 9:00
Chairperson’s Opening Remarks
George Teixeira, Partner ANCHIN
Chairperson’s Opening Remarks
Peter Berlant, Partner ANCHIN
9:10 Private Equity Tax Outlook – What’s on the Horizon for 2017 and Beyond?
George Teixeira, Partner ANCHIN
Ethan R. Goldman, Associate DAVIS POLK
David Benz, Principle DELOITTE
Financial Statements Break Down – Diving Deep into the Details
Marni Pankin, Partner MARCUM
10:00 Considerations for Various Fund and Investment Structures
Josh Cherry‐Seto, Chief Financial Officer BLUE WOLF CAPITAL PARTNERS Michael Shulman, Partner, Co‐Head of Tax Group SHEARMAN & STERLING LLP
Footnote Disclosure Best Practices – Purpose, Organization and Sequencing
Michael Von Bevern, CPA, Co‐Founder & CEO SOCIUM FUND SERVICES Said Ali, Partner KPMG
11:00 Networking Break
11:15 Addressing State and Local Tax Stephen Mahadeo, Director PRICEWATERHOUSECOOPERS, LLP Ocean Mills, Tax Counsel and State Tax Director BLACKROCK, INC
Limited Partner Agreements and Fee Disclosures Kristine O’Connor, Chief Financial Officer FRANKLIN PARK Michael Elio, Partner STEPSTONE
12:15 Lunch
1:15 Evaluating Various Compensation Structures for Managers, GPs and Portfolio Players John Perry, Senior Tax Director NGP ENERGY CAPITAL Jay Freedman, Principal KPMG
FASB and Accounting Hot Topics to Watch for in 2017
Steven Goldberg, Director, Business Risk Services GRANT THORNTON Peter Wilson, Director, Compliance Consulting DUFF & PHELPS
2:15Breaking Down the More Complicated Tax Forms – Dotting your i’s and Crossing Your t’s on Commonly Misfiled Tax Forms
Colleen McHugh, Partner MARCUM
Moshe Metzger, Partner RSM US LLP
Ask the Experts Roundtable – Get Practical Insight on Your Specific Private Equity Accounting Questions
Christopher Mears, Asset Management Practice Leader KPMG
Steven Goldberg, Director, Business Risk Services GRANT THORNTON
3:15 Networking Break
3:30Part 1: Effectively Managing Foreign Tax – Inbound Issues
Sara Zablotney, Partner KIRKLAND & ELLIS
Ron Grabov‐Nardini, Partner AKIN GUMP STRAUSS HAUER & FELD LLP
Fair Value Measurement and Accounting – What the Regulators Asking For
Roger G. Arrieux Jr., Partner DELOITTE
Natasha Holbeck, Partner DELOITTE
4:30 Part 2: Effectively Managing Foreign Tax – Outbound Issues
Mark Leeds, Partner MAYER BROWN
Christopher J. Spiegelman, Managing Director ANDERSON TAX
Audit Preparation – What Should You be Doing Now to Make Sure You’re Ready for the 2017 Audit
Peter Berlant, Partner – Financial Services ANCHIN
Christopher Mears, Asset Management Practice Leader KPMG
5:30 Cocktail Reception
Dear Participants
Dear Conference Participant:
On behalf of Financial Research Associates, I would like to cordially welcome you to this industry event.
We have developed this event based on extensive industry research, structuring the topics and gathering together the speaker faculty based on feedback from numerous industry participants. Our goal is to provide you with the most up-to-date industry information possible, along with top-notch networking opportunities. Every effort has been made on our part to obtain the speakers’ presentations to be included in the PDF link that you have received via email. If a speaker’s presentation is not included in the PDF link, we ask that you contact the speaker directly. If we have failed to meet your expectations in any way, please let us know by completing the evaluation form provided at this event. Of course, we would like to hear positive feedback as well!
We appreciate that you have chosen to spend your timeand training dollars with us, and we’re committed tosatisfying your informational needs. Again, welcome tothis event and thank you for your participation – wetruly value your business.
Additional Questions
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any time.
A link with final speaker presentations will beforwarded via email approximately
2 weeks after the conference.
Kelli BushHealthcare Education Associates
8430 Rea Rd, Suite BCharlotte, NC 28277
704-341-2377 Office704-341-2641 [email protected]
Gold Sponsors
1375 Broadway, New York, NY 10018 212.840.3456 anchin.com @anchincpa
Running with the bulls.
Let us be Your Expert Partner.
Financial Services companies need a solid accounting team behind them to keep up with the pace.
Anchin has a team of experts dedicated to the unique needs of investment partnerships, hedge and private equity funds, and investment advisors. We provide audit, tax, financial reporting, and advisory services to hundreds of clients. To see how Anchin’s experts can help your start-up or existing fund thrive, call Jeffrey Rosenthal or George Teixeira at 212.840.3456.
Jeffrey I. Rosenthal, CPA, CGMA Partner-In-Charge Financial Services [email protected]
E. George Teixeira, CPATax PartnerFinancial [email protected]
1375 Broadway, New York, NY 10018 212.840.3456 anchin.com @anchincpa
No Other Accounting Firm Offers More Intellectual Capital Under One Roof.
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Frank A. Schettino, CPAManaging [email protected]
Private Equity Industry GroupAnchin, Block & Anchin LLPAccountants and Advisors
AboutFounded in 1923, Anchin is recognized as a top-tier accounting and consulting firm nationwide for its quality, size, management, scope of services and work environment. Anchin provides privately-held businesses and high net worth individuals with a wide range of traditional and non-traditional advisory services. Our mission is to be our clients’ Expert Partner, accomplishing this through objectivity, innovation and care. We are committed to connecting clients with partners who provide them with industry knowledge and innovative insights.
ExpertiseAnchin’s expertise extends to many industries, including: Food and Beverage; Fashion; Technology; Public Relations and Advertising; Construction, Architecture and Engineering; Services, Transportation and Logistics; Consumer Products; Real Estate; and Financial Services.
Private Equity Industry GroupPrivate equity firms of all sizes have continued to show a growing interest in middle market companies. An effective strategy in dealing with complex activities involved in the Mergers and Acquisitions (M&A) process is essential. With over 90 years of experience serving middle market companies, Anchin specializes in responding to the individual needs of private equity firms and portfolio companies. We know where the issues are and the importance of having a dedicated team by your side every step of the way. Our single-office firm allows for efficient access to all of our resources, enabling us to deliver consistently superior work to our clients in a timely manner. Our team of experienced professionals provides in-depth industry knowledge while recognizing that each transaction is unique.
The members of Anchin’s Private Equity Industry Group understand the complications involved in transitioning a newly acquired company to a professionally managed organization. Understanding your investment strategy and knowing your company and team members is one of our specialties. Our team has the pertinent skills and expertise to help you succeed.
Key Facts• Largest single-office accounting firm in U.S. • Over 50 Partners and Principals, Staff of 350• Ranked as a Best Place to Work in NYC and
NYS, Best Accounting Firm to Work For in U.S. and North America
• Consistently one of top 30 largest firms in U.S. • An independent member of BKR International
Core Services
• Accounting, Audit, Advisory services • Dedicated teams to key industry sectors• Tax, financial, and accounting due diligence• Tax services including the implementation of
risk management and corporate governance best practices along with timely schedule K-1 delivery
Anchin, Block & Anchin LLPAccountants and Advisors1375 Broadway, New York, NY 10018212.840.3456 • www.anchin.com
E. George Teixeira, CPA, MS Stephen Plattman, CPA, CGMA [email protected] [email protected]
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Chairperson’s Opening Remarks
Peter Berlant, Partner ANCHIN
Financial Statements Break Down – Diving Deep into the Details
Marni Pankin, Partner MARCUM
Marni Pankin is a Partner in the Firm’s National Alternative InvestmentIndustry group responsible for advising clients on the formation and operationof investment funds. She assists with the Group’s administration and policysetting and provides technical support to the financial statement audit engagement team. Ms. Pankin successfully spearheads the Firm’s Alternative InvestmentGroup training program. She develops the curriculum and provides hedgefund training to smaller accounting firms. She is a frequent presenter at industry conferences and currently serves as the editor-in-chief for theFirm’s alternatives-focused newsletter, Private Investment Forum. Ms. Pankin has more than 20 years experience. She began her careerin the audit department of a “Big 4” accounting firm and later served asController for a privately-held hedge fund management firm. In addition,she remains active with her alma mater and involves the Firm with on-campus recruiting.
Professional affiliationsAmerican Institute of Certified Public Accountants (AICPA), Peer ReviewerNew York State Society of Certified Public Accountants (NYSSCPA)Hedge Funds CareMid Island Y Community Center, K.I.S.S. ProgramLong Island Children’s Museum Trustee
seminars & PresentationsFinancial Research AssociatesFoundation for Accounting Education Investment Conference
Marni PankinAlternAtive investment GrouP
areas of exPertiseFund Formation
Consultation ServicesFinancial Statement Audits
Financial ReportingPortfolio Accounting Systems
& ReconciliationsBack Office OperationsPerformance Reporting
Internal Controls
key clientsInvestment Partnerships
Hedge FundsPrivate Equity Funds
Fund of FundsRegistered Funds
Management CompaniesGeneral Partnerships
educationBachelor of Science, Accounting
State University of New York at Albany
Marni Pankin, cPa*Partner
*Licensed by the State of New York
Phone [email protected]
12/2/2016
1
Private Equity Financial Statement Breakdown
Presented by:
Marni Pankin, CPA, Partner
Marcum
Private Equity Tax and Accounting ForumDecember 5, 2016
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0914000N
Private Equity Financial Statements
Statement of Financial Condition (Condensed )Schedule of Investments Statement Of Operations Statement of Changes in Partners Capital Statement of Cash Flows Supplemental Schedules Statement(s) of Changes in Partner’s Capital
Capital Commitments
Investment Company Assessment
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0914000N
XYZ Private Equity Fund, L.P.
STATEMENT OF FINANCIAL CONDITION
12/31/2016
In Thousands
Assets
Investments, at fair value (cost of $13,993,825) $ 4,864,484
Cash 5,402
Due from affiliates, net 708,826
Escrow receivable 55,101
Prepaid expenses 23,388
Total Assets $ 5,657,201
Liabilities and Partners' Capital
Liabilities
Distributions payable $ 359,602
Accrued expenses 75,000
Total Liabilities $ 434,602
Partners' Capital 5,222,599
Total Liabilities and Partners' Capital $ 5,657,201
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0914000N
XYZ Private Equity Fund, L.P.
SCHEDULE OF INVESTMENTS
12/31/2016
Shares/Units Percentage
or of
Principal Partners'
Amount Description Fair Value Capital
Investments in Private Companies In Thousands
United States
Non‐Marketable Securities
Common Stock
Financial services
9,668,872 ABC Comapny + Co., Inc. Series C (cost of $163,339)$ ‐‐
‐‐%
Limited Liability Companies
Healthcare
DEF Holdings LLC (12.45% ownership)4,040,455 77.36
Technology
1,898,019 GHI Holdings, LLC‐‐ ‐‐
Financial services
XYZ JKL Holdings, LLC
(Holding Company for JKL, LLC) (9.4% ownership) 824,029 15.78
Total Limited Liability Companies (Cost of $5,943,251) 4,864,484 93.14
Promissory Note
Financial services
$ 7,887,235 JKL., Inc., 8% senior secured notes
due August 5, 2017 (1) (cost of $7,887,235) ‐‐ ‐‐
Total Investments in Private Companies
(Cost of $13,993,825) $ 4,864,484 93.14 %
(1) The Partnership stopped accruing interest on September 30, 2015.
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0914000N
Schedule of Investment‐Alternative Presentation
XYZ Private Equity Fund, L.P.SCHEDULE OF INVESTMENTS
12/31/2016
Shares/Units In Thousands Percentage
or of
Principal Partners'
Amount Description Cost Fair Value Capital
Investments in Private Companies
ABC Porfolio Company, Inc
35,748 25% Priority Cumulative Preferred Stock $ 5,478 $ 6,300
9686 15% Senior Preferred Stock 125 286
1,311,000 Common Stock 50,000 53,689
137,500 Warrants 137
1,940,000 8% Subordinated Note due March 15, 2019 1,940 1,940
(Transportation logistics services headquartered in $ 57,543 $ 62,401 5.28 %
Atlanta, Georgia)
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0914000N
XYZ Private Equity Fund, L.P.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2016
In Thousands
Investment Income
Interest $ 80
Total Investment Income $ 80
Expenses
Gross management fees 217,715
Professional fees 34,703
Broken Deal fees 40,000
Interest expense 2,500
General and administrative 51,459
Total Expenses 346,377
Less Management Fee Offset (2,500)
343,877
Net Investment Loss (343,797)
Realized and Unrealized Gain (Loss) on Investments
Net realized gain on investments 219,125
Net increase in unrealized depreciation on investments 3,798,253
Net Realized and Unrealized Gain on Investments 4,017,378
Net Income $ 3,673,581
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Related Parties (ASC 850) The FASB ASC glossary defines related parties as:a) Affiliates of the entityb) Entities for which investments in their equity securities would be required,
(absent the fair value option election) to be accounted for by the equity method by the investing entity
c) Trusts (employee benefit, pension and profit‐sharing) that are managed by or under the trusteeship of management
d) Principal owners of the entity and members of their immediate familiese) Management of the entity and members of their immediate familiesf) Other parties with which the entity may deal if one party controls or can
significantly influence the management or operating policies of the other g) Other parties that can significantly influence the management or operating
policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
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0914000N
Related Parties (ASC 850),continuedExamples of Related Party Transactions relevant to Funds:
o Transactions between a Fund and its Investment Manager (IM)/General Partner (GP)
• i.e. management fees and incentive fees/allocations• Fund expenses paid by the IM/GP on behalf of the Fund
o Sale of a security from one entity to another related entityo Services provided by the IM, GP or affiliate to the portfolio company
• Monitoring/ Consulting/ Transaction fees
o Services provided by the IM or affiliate to the Fund • i.e. Accounting and legal services
o A loan made by one entity to another related entity.o Guarantees made by one party to another related party.o IM, GP or affiliate sits on the Board of:
• a company the Fund invests in, or • the bank/broker used by the Fund to hold assets.
o IM or affiliate is a broker and places trades for the Fund and collects a commission on such transactions.
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0914000N
Related Parties (ASC 850), continued Financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business.
The disclosures shall include:o The nature of the relationship(s) involvedo A description of the transactions, including transactions to which no amounts or nominal amounts
were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements
o The dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period
o Amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement
Transactions involving related parties cannot be presumed to be carried out on an arm's‐length basis, as the requisite conditions of competitive, free‐market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the
related party transactions were consummated on terms equivalent to those that prevail in arm's‐length transactions unless such representations can be substantiated.
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XYZ Private Equity Fund, L.P.STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 2016
In Thousands
General Limited
Partner Partners Total
Partners' Capital ‐ January 1, 2016 $ 56,047 $ 1,564,694 $ 1,620,741
Capital contributions ‐‐ ‐‐ ‐‐
Capital distributions (21,987) (49,736) (71,723)
Pro‐rata allocation of net income 18,327 3,655,254 3,673,581
Change in accumulated carried interest
on unrealized gains 323,247 (323,247) ‐‐
Allocation of carried interest on realized gain 21,915 (21,915) ‐‐
Partners' Capital ‐ December 31, 2016 $ 397,549 $ 4,825,050 $ 5,222,599
12/2/2016
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0914000N
XYZ Private Equity Fund, L.P.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2016
In Thousands
Cash Flows From Operating Activities
Net income $ 3,673,581
Adjustments to reconcile net income to net cash
used in operating activities:
Purchases of investment securities $ (2,000,000)
Proceeds from sale of investment securities 2,219,125
Net realized gain on investments (219,125)
Net change in unrealized depreciation on investments (3,798,253)
Escrow receipts 16,642
Changes in operating assets and liabilities:
Due from affiliates, net 87,671
Prepaid expenses 3,602
Accrued expenses (20,000)
Total Adjustments (3,710,338)
Net Cash Used in Operating Activities (36,757)
Cash Flows Used in Financing Activities
Capital distributions (includes 2015 capital distributions
of $4,191,834 paid in 2016) (4,263,557)
Net Decrease in Cash (4,300,314)
Cash ‐ January 1, 2015 4,305,716
Cash ‐ December 31, 2016 $ 5,402
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0914000N
XYZ Private Equity Fund, L.P.
CASH FLOW WORKSHEET
December 31, 2016
12/31/2016 12/31/2015 Change Cash Operating Financing Non‐cash
Investments in securities 4,864,484 1,066,231 (3,798,253) (3,798,253)
Cash and Cash Equivalents 5,402 4,305,716 4,300,314 4,300,314
Amounts held in escrow 55,101 71,743 16,642 16,642
Due to/from affiliate 708,826 796,497 87,671 87,671
Prepaid Assets 23,388 26,990 3,602 3,602
5,657,201 6,267,177 609,976
Accrued Expenses 75,000 95,000 (20,000) (20,000)
Due to Partners 359,602 4,551,436 (4,191,834) (4,191,834)
Partners Capital 5,222,599 1,620,741 3,601,858 3,673,581 (71,723)
5,657,201 6,267,177 (609,976)
‐ ‐ ‐ 4,300,314 (36,757) (4,263,557) ‐
Purchases/Sales of Investments
Balance
Purchases(neg) (2,000,000)
Proceeds(pos) 2,219,125
Realized (219,125)
Unrealized (3,798,253)
Total (3,798,253)
chk ‐
Cost Roll
Cost of Investments 1/1/16 13,993,825
Purchases 2,000,000
Sales (2,219,125)
Realized g/l 219,125
Cost of Investment 12/31/16 13,993,825
Per SOI 13,993,825
diff ‐
12/2/2016
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0914000N
Supplemental Statements
Statement of Changes in each Partner’s Capital Same line items as before but for each individual investor Include a line for transfers
Capital CommitmentsInclude: Total capital commitments Net capital contributed Unused capital commitments
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0914000N
Investment Company Assessment‐ASU 2013‐08An investment company must have the following characteristics‐1. Obtains funds from one or more investors and provides the
investors with investment management services 2. Commits to its investors that its business purpose is investing the
funds for returns from capital appreciation, investment income or both
3. Does not obtain returns or benefits from investees that are not attributable to ownership interests or that are other than capital appreciation or investment income.
12/2/2016
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0914000N
New two‐tiered approach to assess whether an entity is an investment co. • Required to consider its purpose and design of the entity.
• 1. Should have no substantive activities other than investing and should not have significant assets or liabilities
• Developing, producing, marketing products and services of an investee would be inconsistent with investment company characteristics. However, an entity can assist with day to day management of the operations of an investee, provides loans and guarantees
2. For Investment companies whose business purpose includes realizing capital appreciation, they should have an exit strategy for how it plans to realize the capital appreciation of its investments. need not be a specific exit strategy for each individual investment
Investment Company Assessment‐ASU 2013‐08 (continued)
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0914000N
Determining whether Loan Origination is a Substantive Activity When Assessing Whether an Entity Is an Investment Company?
FactorMore indicative of an investment
companyLess indicative of an investment company
Fees
Fee income generated from the entity’s
loan origination activities is insignificant
relative to total income.
Fee income generated from the entity’s loan
origination activities is significant to total income.
Investing activity
The entity’s purchases and sales of non‐
originated securities are significant in
relation to its origination of loans.
The entity may originate loans and sell them primarily
for the purpose of generating origination fees. Loans
originated by the entity are its primary investments.
Regulatory considerations
The party that manages the entity is
registered with the SEC or a state as an
investment adviser.
The entity is required to operate like a bank by a
banking authority, for example, licensing and capital
requirements.
Entity ownership and
management
The entity is managed by an investment
adviser, and substantially all investors are
unrelated third parties.
The entity is a bank, an entity owned by a bank, or a
captive finance company.
Customization of the loansLoans are originated with unique features
specific to each individual loan.
Loans are originated using standard terms and
agreements (generally in higher volumes).
Loan retention
Loans are created and held as part of the
investment portfolio to match the
investment horizon of the entity.
Loans are sold shortly after origination through
securitizations or otherwise.
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0914000N
Contact InformationMarni Pankin, CPA, PartnerMarcum [email protected]
Questions?
Footnote Disclosure Best Practices – Purpose, Organization and Sequencing
Michael Von Bevern, CPA, Co-Founder & CEO SOCIUM FUND SERVICES
Said Ali, Partner KPMG
Effective Footnote Disclosures“The accompanying notes are an integral part of the financial statements.”
Michael Von Bevern, CPA, CAIA
CEO & Co-Founder
Introduction
• What are footnotes?• Who’s reading the footnotes?• What are users of the financial statement looking
for?• What information goes in the footnotes?
• Relevant risks, such as market and credit risk• Fair Valuation of Investments (ASC 820)• Related Party Transactions (ASC 850)• Financial Highlights• Use of Leverage• Income Taxes• And More!
Introduction (Continued)
• Footnotes expand on the quantitative financial statements by providing qualitative information that allows for a greater understanding of a fund’s true financial performance over a specified period of time.
• Footnotes are the who, what when, where and why. They complete the full picture by adding a spectrum of color to the black-and-white outline of the numbers alone.
• Although footnotes are a required part of any financial statement, there are no standards for clarity and conciseness.
• Management is required to disclose information “beyond the legal minimum”.
• Management tends to over-disclose vs. under-disclose.
Problems With Footnotes
• The problem with footnotes are well known. They are:• Boilerplate• Repetitive• Difficult to understand• Out-of-date or immaterial
• Many auditing firms have taken steps to help preparers combat these issues by publishing annual guides. These guides can help you streamline footnotes by focusing the disclosures on the information that is material and relevant.
• Be careful not to disclose trade secrets!
Regulatory Impact
• Both the FASB and the SEC have recently created initiatives to streamline and improve disclosures.
• The SEC has been focused on:• Reducing repetitive disclosures• Focusing on material disclosure• Removing outdated and immaterial disclosure
• FASB issues Topic 235 in September 2015 “Assessing Whether Disclosures are Material”.
• The goal is to improve the effectiveness of disclosure.
• The goal is NOT to reduce the volume of disclosure!
What is “Material” in Footnotes
• Materiality is one of the key principals of financial reporting. Therefore, efforts to make disclosures more effective typically focus on evaluating whether or not disclosures actually provide material information to the users.
• Before you remove any “immaterial” disclosures, thoroughly document your decision and consult your auditor.
• Reviewing your footnotes for immaterial or repetitive disclosure is a worthwhile exercise and should be a priority.
• Defining “materiality”… one word makes a big difference!• FASB definition – “Could influence”• SEC definition – “Would influence”
• Fund managers are the best judge of materiality within their own fund, and should read their fund’s footnotes.
Footnote Clarity
• Technical guidance on private equity funds is vague. At minimum, you should not disclose “Investments in Private Equity”• More specific categorizations around strategy (i.e. buyout, venture,
mezzanine), industry, vintage and geography are appropriate
• Try to avoid a voluminous narrative
• Consider using tables, charts and graphs as an alternative to words• Some disclosures such as ASC 820 require a table, along with a narrative
• Consider a Table of Contents and cross references
Ordering Footnotes
• There is some flexibility in ordering the footnotes
• In general, footnotes should be organized in order of importance to your fund
• “Simple, but Effective” presentation to your stakeholders
• Consider following your auditor’s template
• Talk to your Fund Administrator regarding best practices
• Dare to be different!
Picking A Preparer
• Pick your preparer carefully• Preparers should have intimate knowledge of your fund
operations, as well as familiarity with creating financial statements
• Insist that your preparer meets with your auditor before the audit starts to get on the same page
• Your preparer should create a full set of interim financial statements and notes, so that financial highlights and other complicated disclosures can be vetted well in advance of the reporting deadline
Conclusion
• A streamlined presentation of effective footnote disclosures benefits both the fund manager and the users of the financial statements
• Effective footnotes and financial statement disclosures are a hot topic because the majority of funds need to improve in this area.
• Regulators are reviewing how to make disclosures more effective and more transparent to users, including the disclosures of non-registered investment funds
• The time to effect change is now!
Limited Partner Agreements and Fee Disclosures
Kristine O’Connor, Chief Financial Officer FRANKLIN PARK
Michael Elio, Partner STEPSTONE
Kristine O’Connor is Managing Director and Chief Financial Officer at Franklin Park.
At Franklin Park, Kristine leads the finance, accounting and reporting functions. She is also actively involved in the firm’s compliance efforts.
Prior to joining Franklin Park in 2008, Kristine worked with the United States Securities and Exchange Commission, Massachusetts Pension Reserves Investment Management Board and PricewaterhouseCoopers. She is a Certified Public Accountant and a Chartered Alternative Investment Analyst. Kristine received a B.S. in Accounting and Theology from Boston College.
Michael Elio, Partner, New York
At StepStone, Mr. Elio is Co‐Head of the Middle Market Buyout
and Distressed/Turnaround Sector Teams. Mike works closely
with clients on constructing portfolios of global private equity
funds, secondaries and co‐investments.
Prior to StepStone, Mr. Elio was a Managing Director at ILPA,
where he led ILPA’s programs around research, standards and
industry strategic priorities.
Prior to joining the ILPA, he was a Partner and Managing Director
at LP Capital Advisors and led the firm’s Boston office where he
served as the lead consultant to North American and European
institutional investors. Mr. Elio served as the primary consultant
for many of the firm’s largest clients including Public and Private
Pension plans committing in excess of $5 billion annually. Mr.
Elio held several progressive positions in private equity, including
Vice President at State Street Corporation and Vice President at
Credit Suisse First Boston Private Equity overseeing the Funds
Management group.
FASB and Accounting Hot Topics to Watch for in 2017
Steven Goldberg, Director, Business Risk Services GRANT THORNTON
Peter Wilson, Director, Compliance Consulting DUFF & PHELPS
Ask the Experts Roundtable – Get Practical Insight on Your Specific Private Equity Accounting Questions
Steven Goldberg, Director, Business Risk Services GRANT THORNTON
Christopher Mears, Asset Management Practice LeaderKPMG
© 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
CHRISTOPHER MEARS Audit Partner, Asset Management Practice Leader-Short Hills, New Jersey
KPMG LLP 51 John F. Kennedy Parkway Short Hills, NJ 07078
Tel 973-315-2315 Mobile 973-699-4148 [email protected]
Representative Strategies
■ Convertible Arbitrage
■ Distressed Debt
■ Event Driven
■ Global Macro
■ Long/Short Equity
■ Reinsurance
■ Structured Finance
Representative Structures
■ Hedge Fund
Master Feeder
Mini Master
Side Pockets
Side by side
Funds of One
Managed account platforms
■ Hedge Fund of Funds
■ Private Equity
■ Private Equity Fund of Funds
■ Venture Capital
Professional Associations
■ New Jersey Society of Certified Public Accountants (NJSCPA)
■ American Institute of Certified Public Accountants (AICPA)
■ Faculty member of the Regulatory Compliance Association
Education, Licenses & Certifications
■ BSBA in Accounting from Rutgers University
■ CPA in 3 states
Background
Chris is KPMG’s National Operations Leader for our Hedge Fund Audit Practice as
well as the Asset Management Practice Leader for our Short Hills Office. As the
sector leader, Chris is responsible for setting the strategy for the practice and
overseeing execution. He focuses the Firm’s advisory, tax and audit resources in
the hedge fund market, including all activities for business and practice
development, professional development, technical support, and market activity.
Chris is also an audit partner in the Metro New York Market serving several of the
Firm’s alternative investments clients.
Professional and Industry Experience
Chris has over 20 years of experience in alternative investments, with a particular
emphasis on investment partnerships, offshore funds, funds of funds, commodity
pools, venture capital and private equity funds. He advises alternative investment
clients regarding various matters involving Generally Accepted Accounting
Principles, Generally Accepted Auditing Standards, PCAOB Auditing Standards,
alternative investment industry practices, transactional matters, and other
regulations that may have an impact on an alternative investment fund complex.
Chris has assisted alternative investment clients with matters involving operational
efficiency, regulatory compliance, management reporting, performance reporting,
financial management and budgeting, accounting, auditing and internal control.
Chris has previously testified as an expert on accounting standards and practices in
the alternative investment industry.
Prior to KPMG in July 2014, Chris served as the Principal-in-Charge of Rothstein
Kass’ New York Metro Financial Services Group which includes oversight of
approximately 400 audit and tax professionals. He has been an audit principal since
2000, served on Rothstein Kass’ Executive Committee and served as the firm’s
Chief Operating Officer.
He is a member of the AICPA, NJSCPA and Managed Funds Association. He is a
licensed Certified Public Accountant in 3 states.
Publications and Speaking Engagements
Chris is a frequent speaker at various conferences as well as firm marketing events,
has been quoted by various publications including the Wall Street Journal and has
authored articles pertaining to hedge funds and private equity, inclusive of those
sponsored by:
Goldman Sachs Prime Brokerage Annual Hedge Fund Summit
Managed Funds Association
Regulatory Compliance Association
Financial Research Associates-Hedge Fund Audit and Accounting
Issues/Challenges of Hard to Value Securities
Author: “ASC 820 Fair Value Measurements: Implementation Challenges for the
Alternative Investment Industry,” Rothstein Kass Accounting Implementation
Guide (whitepaper)
Author: “Side Pockets: The Convergence of Hedge Funds and Private Equity,”
Financier Worldwide Magazine
Fair Value Measurement and Accounting – What the Regulators Asking For
Roger G. Arrieux Jr., Partner DELOITTE
Natasha Holbeck, Partner DELOITTE
Copyright © 2008 Deloitte Development LLC. All rights reserved.
Professional Profiles
Over 25 years of accounting and alternative asset management experience.
M.B.A., Columbia UniversityB.S., Baruch College
Experience:
Education:
Audit PartnerAlternative Asset ManagementDeloitte & Touche LLPNew York, NY+1 212 436 [email protected]
Roger G. Arrieux, Jr.
In his 20+year career at Deloitte, Roger has served large, complex investment advisers, partnerships, hedge funds,and funds of funds as an alternative investment management specialist. In addition to his client service role, Rogeris an engagement quality control reviewer and he is committed to developing industry practitioners, bothmanagerially and technically, and in enhancing the eminence of the industry. Roger has taken an active role indeveloping and instructing alternative asset management and other professional education courses and has alsospoken at numerous industry conferences and been quoted in alternative investment management industrypublications.
Roger frequently assists clients of all sizes in understanding the various regulatory, structural, and operationalframeworks for the industry and has worked with advisors in establishing domestic and offshore funds and instructuring their alternative investment organizations. He has hands-on experience in conducting regulatory reviews,operational reviews, due diligence assignments, and performance reviews.
In addition to serving many prestigious organizations, Roger serves as a Regional Inclusion Leader and he iscommitted to building a culture of mutual accountability and acceptance where ALL leaders can thrive. Lastly, Rogeris extremely active in the marketplace and he serves on the board of directors of several charitable organizations.Roger is married to Orlene and they have three children; Roger III, Alexa and Julia.
Certifications: Certified Public AccountantAssociations: American Institute of Certified Public Accountants, New York State Society of
Certified Public Accountants, National Association of Black Accountants
Natasha Holbeck. Partner
Tel: +1 212 436 3781
E-mail: [email protected]
Office: Deloitte & Touche LLP
Natasha is currently an audit partner in the NY Financial Services practice serving clients across the spectrum within the investment management sector, including, investment companies, exchange traded funds, investment advisors and private funds. She has also served clients in the retail, manufacturing and Japanese Services Group. Her tenure at Deloitte includes a Manager Development Program rotation in the National Office Audit Group where she led projects relating to financial instruments, alternative investments and fair value measurements.
Representative Financial Services clients included BlackRock, ETF Securities, Bessemer Group, General Motors Asset Management and Focus Financial Partners. Commercial clients included Mitsubishi International Corporation and Chanel International.
She is a Certified Public Accountant licensed in the states of New York and Colorado and is a Chartered Accountant registered in South Africa. Natasha is on the Board of The Association of Chartered Accountants of US. She represents Deloitte as a member of the steering committee of the Network of Executive Women.
12/16/2016
1
Fair Value Measurement and AccountingRoger G. Arrieux, Jr. and Natasha Holbeck
Roger G. Arrieux, JrPartner, Deloitte
12/16/2016
2
Natasha HolbeckPartner, Deloitte
Key discussion points▪ Internal controls
▪ Documentation
▪ Fair value methodologies
▪ ASC 820 Leveling
12/16/2016
3
Internal controls▪ Controls over the process for determining fair value
▪ Pricing inputs, assumptions models
▪ Reviewing the work of a specialist
▪ Management override
▪ Expertise and experience of control performer
▪ Transaction type – routine and non routine
Documentation▪ Valuation policy
▪ Pricing matrix – completeness, accessibility
▪ Leveling policy and support
▪ Pricing source - Internal valuations, external appraisers, broker quotes, vendor pricing services
▪ Internal controls
▪ Management review controls
▪ Qualifications of control performer
▪ Precision of control
▪ Information used in the control
12/16/2016
4
Fair Value Methodologies▪ Market approaches
▪ Market prices / transactions
▪ Guideline public company multiples
▪ Income approach
▪ Discounted Cash Flow
▪ Use of Multiple Approaches
ASC 820 Leveling▪ Level 1
▪ Unadjusted quoted prices in active markets
▪ Level 2
▪ Quoted prices in inactive markets
▪ Quoted prices for similar securities
▪ Level of unobservable inputs considered insignificant
▪ Level 3
▪ Models with one or more unobservable significant inputs
12/16/2016
5
Preparing for this year’s audit ▪ Identify new security types
▪ Discuss valuation methodology changes
▪ Revisit documentation and update as needed
▪ Review of financial statement presentation and disclosure
Questions?
Audit Preparation – What Should You be Doing Now to Make Sure You’re Ready for the 2017 Audit
Peter Berlant, Partner – Financial Services ANCHIN
Christopher Mears, Asset Management Practice Leader KPMG
© 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
CHRISTOPHER MEARS Audit Partner, Asset Management Practice Leader-Short Hills, New Jersey
KPMG LLP 51 John F. Kennedy Parkway Short Hills, NJ 07078
Tel 973-315-2315 Mobile 973-699-4148 [email protected]
Representative Strategies
■ Convertible Arbitrage
■ Distressed Debt
■ Event Driven
■ Global Macro
■ Long/Short Equity
■ Reinsurance
■ Structured Finance
Representative Structures
■ Hedge Fund
Master Feeder
Mini Master
Side Pockets
Side by side
Funds of One
Managed account platforms
■ Hedge Fund of Funds
■ Private Equity
■ Private Equity Fund of Funds
■ Venture Capital
Professional Associations
■ New Jersey Society of Certified Public Accountants (NJSCPA)
■ American Institute of Certified Public Accountants (AICPA)
■ Faculty member of the Regulatory Compliance Association
Education, Licenses & Certifications
■ BSBA in Accounting from Rutgers University
■ CPA in 3 states
Background
Chris is KPMG’s National Operations Leader for our Hedge Fund Audit Practice as
well as the Asset Management Practice Leader for our Short Hills Office. As the
sector leader, Chris is responsible for setting the strategy for the practice and
overseeing execution. He focuses the Firm’s advisory, tax and audit resources in
the hedge fund market, including all activities for business and practice
development, professional development, technical support, and market activity.
Chris is also an audit partner in the Metro New York Market serving several of the
Firm’s alternative investments clients.
Professional and Industry Experience
Chris has over 20 years of experience in alternative investments, with a particular
emphasis on investment partnerships, offshore funds, funds of funds, commodity
pools, venture capital and private equity funds. He advises alternative investment
clients regarding various matters involving Generally Accepted Accounting
Principles, Generally Accepted Auditing Standards, PCAOB Auditing Standards,
alternative investment industry practices, transactional matters, and other
regulations that may have an impact on an alternative investment fund complex.
Chris has assisted alternative investment clients with matters involving operational
efficiency, regulatory compliance, management reporting, performance reporting,
financial management and budgeting, accounting, auditing and internal control.
Chris has previously testified as an expert on accounting standards and practices in
the alternative investment industry.
Prior to KPMG in July 2014, Chris served as the Principal-in-Charge of Rothstein
Kass’ New York Metro Financial Services Group which includes oversight of
approximately 400 audit and tax professionals. He has been an audit principal since
2000, served on Rothstein Kass’ Executive Committee and served as the firm’s
Chief Operating Officer.
He is a member of the AICPA, NJSCPA and Managed Funds Association. He is a
licensed Certified Public Accountant in 3 states.
Publications and Speaking Engagements
Chris is a frequent speaker at various conferences as well as firm marketing events,
has been quoted by various publications including the Wall Street Journal and has
authored articles pertaining to hedge funds and private equity, inclusive of those
sponsored by:
Goldman Sachs Prime Brokerage Annual Hedge Fund Summit
Managed Funds Association
Regulatory Compliance Association
Financial Research Associates-Hedge Fund Audit and Accounting
Issues/Challenges of Hard to Value Securities
Author: “ASC 820 Fair Value Measurements: Implementation Challenges for the
Alternative Investment Industry,” Rothstein Kass Accounting Implementation
Guide (whitepaper)
Author: “Side Pockets: The Convergence of Hedge Funds and Private Equity,”
Financier Worldwide Magazine