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PE Accounting Technical News

ILPA Quarterly Reporting Standards Best Practices are out

ILPA Quarterly Reporting Standards Best Practices are out
19/10/2011

On 18 October 2011, after the comments period for the original draft that ILPA had released in August has ended and after they have incorporated comments from constituents (LPs, GPs, industry professionals and other constituents), ILPA released its Quarterly Reporting Standards Best Practices, the next of the series of standardised templates, with the first ones being the Drawdowns and Distributions templates release in January.

What do they mean generally to the industry?

The Quarterly Reporting Standards Best Practices are a significant step towards more reporting transparency between GPs and LPs, consistency and improved industry efficiencies in reporting practices through standardisation, allowing “for consistency of reporting, uniformity of information, reduction in time required to reconcile reports and less time responding to questions from investors on various and sundry items” as stated by the ILPA itself.

What do they mean to fund accountants?

For fund accountants though, this standard template also means a reference point, one of few in an industry that is generally very secretive and investor reports and financial statements are not readily available, so that you can benchmark your reports and financial statements against other funds’.

Highlights

  • · Components of the package:
    • Summary Management Discussion and Analysis Letter
    • Financial Package (Balance Sheet, Schedule of Investments, Statement of Operations, Statement of Cash Flows, Partners’ Capital Account Statement, Footnotes Disclosures)
    • Supplemental Management Reports (Executive Summary, Supplemental Schedule of Investments and Portfolio Company Update)
  • There are guidelines provided to each component of the package, a sample quarterly report, a checklist and a glossary
  • Timing of delivery of the package (for quarterly reports 60 days after quarter-end with a targeted delivery of 45 and extended delivery times for FoFs and 30 days added to the above for audited financials)
  • Financial Statements should be prepared for the legal entity to which the investor has committed with a preference for consolidated statements (where appropriate)
  • The set of financial statements in the template is based on US GAAP as stated in the footnotes to the financial statements, but if you are familiar with US GAAP you may not get the feel that the accounts are prepared exactly following the AICPA Investment Companies Audit & Accounting Guide, but rather a mixture of US GAAP and IFRS (modified to the needs of a PE fund).
  • Although US GAAP does not require comparatives, the guidelines generally recommend them.
  • For movement reports (e.g. Statement of Operations, Statement of Cash Flows, etc.), current period, year-to-date and since inception information is recommended
  • For the Statement of Operations, a breakout of realised and unrealised gains/losses (not required under IFRS) separate from FX is recommended
  • Generally, the focus of the Quarterly Reporting Standards Best Practices is rather on the minimum level of disclosure expected by the institutional LPs, and not a stringent format for reporting as most of the guidance (except for the Financial Package) being out of the scope of an audit.

Implementation

Feedback from GPs seems to have demonstrated their readiness to implement the best practices with most of them indicating that they will be aiming at implementing the best practices for Q1 2012 accounts.

However, only time will tell whether or not they will find wide acceptance and PEAI will be keeping you up-do-date with the implementation.

Private Equity Accounting Insights
Technical & Industry News Department