Private Equity
Fund audits, portfolio company work, and deal diligence for private equity sponsors, from platform acquisitions through add-ons and exit.
Overview
Private equity sponsors need accounting support at two levels. At the fund, limited partners expect audited financial statements, accurate capital accounts, and timely K-1s. At the portfolio, each company needs its own audit or review, lender reporting, and diligence every time the sponsor pursues an add-on. Pease Bell, a Top 200 U.S. CPA firm headquartered in Cleveland, Ohio, works with private equity firms across both levels, combining audit, tax, and advisory under one roof so the fund and its companies are served by a coordinated team.
We focus on the work that shows up repeatedly in a private equity cycle: quality of earnings before a platform or add-on close, purchase accounting and integration support after it, annual portfolio company audits for lenders and the sponsor, and fund-level tax compliance that addresses management fees, carried interest, and allocations under the partnership agreement. Our goal is to give deal teams and CFOs reliable numbers without slowing the transaction calendar.
How We Help Private Equity Firms
Private Equity Fund Audits
Audits of private equity funds and their related vehicles under U.S. GAAS, covering fair value of portfolio investments, capital activity, allocations of income and carried interest, and investor disclosures.
Portfolio Company Audits
Annual audits and reviews of portfolio companies to satisfy lender covenants, sponsor requirements, and exit readiness, coordinated across the portfolio for consistent timing and reporting.
Quality of Earnings
Buy-side quality of earnings on platform and add-on targets, covering adjusted EBITDA, net working capital, debt-like items, and run-rate considerations that inform price and financing.
Add-On Acquisition Support
Diligence, purchase accounting, opening balance sheet work, and accounting policy alignment for add-ons, so newly acquired businesses can be folded into the platform’s reporting efficiently.
Fund Tax and K-1s
Partnership returns, investor K-1s, state composite and withholding filings, and allocation reviews under the fund’s partnership agreement, prepared on a calendar built around portfolio company tax information.
Carry and Fee Tax Considerations
General guidance on the tax treatment of management fees and carried interest, including the extended holding period rules for carried interest under IRC Section 1061, in coordination with fund counsel.
Challenges We Help You Address
- ✓Supporting Level 3 fair value marks on private portfolio companies
- ✓Validating adjusted EBITDA on add-on targets before signing
- ✓Integrating acquired companies’ accounting into platform reporting
- ✓Coordinating audits across multiple portfolio companies and lenders
- ✓Allocating income and carried interest correctly under the partnership agreement
Frequently Asked Questions
What does a private equity fund audit cover?
A private equity fund audit covers the fund’s financial statements, with particular focus on the fair value of portfolio investments, capital contributions and distributions, fees and expenses, and the allocation of gains and carried interest among partners. Auditors also review disclosures limited partners rely on, such as valuation techniques and commitments. The audit gives investors independent assurance over the figures in their capital accounts.
How is carried interest taxed?
Carried interest is generally a share of fund profits allocated to the general partner, and its character usually follows the underlying income, such as capital gain. IRC Section 1061 requires a longer holding period than the normal long-term capital gain rule for certain gains allocated on carried interest to qualify for long-term treatment. The rules are technical, so fund structures should be reviewed with tax advisors and counsel.
Why do private equity firms order quality of earnings reports on add-ons?
Add-on targets are often smaller businesses with less formal reporting, and their adjusted EBITDA directly affects purchase price and the financing the platform can raise. A quality of earnings report tests those adjustments, reviews working capital trends, and identifies debt-like items. It helps the sponsor and lenders make decisions from validated numbers rather than the seller’s presentation alone.
Can the same CPA firm audit the fund and its portfolio companies?
In many cases, yes, subject to independence rules. Using one firm for the fund and several portfolio companies can make it easier to align audit timing, valuation support, and tax information that flows up to the fund. The firm must evaluate independence for each engagement, particularly where it also provides nonaudit services, and we plan engagements with those requirements in mind.
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