Auditing an asset manager is not primarily an exercise in auditing the manager. The firm's own balance sheet is usually simple — fee income, staff costs, some regulatory capital. The complexity sits in what the firm holds or controls on behalf of other people: client money, custody assets, fund valuations and a regulatory regime that requires separate reporting to the FCA on whether the controls around them actually worked.
The layers of assurance
An asset manager typically needs several distinct pieces of work, and they are frequently confused with one another:
- The statutory audit of the firm's own financial statements, which for most managers is straightforward;
- The client assets audit — a separate report to the FCA on whether the firm maintained systems adequate to comply with the client money and custody asset rules throughout the period, and whether it was compliant at the period end. It is a reasonable assurance engagement in its own right, conducted under a specific standard, and it produces a report the FCA reads;
- Fund audits, where the firm manages authorised funds — each with its own financial statements, its own reporting deadlines and its own regulatory requirements on valuation and pricing;
- Controls reports for institutional clients, typically under AAF or ISAE frameworks, giving third parties assurance over the operating effectiveness of the manager's controls.
The distinction that matters most: the client assets report is not part of the financial statement audit and cannot be satisfied by it. A clean audit opinion says nothing about whether client money was correctly segregated.
Where the risk concentrates
Valuation is the first area. For listed holdings this is mechanical; for unlisted and illiquid assets it is a judgement, made by the manager whose fees depend on it. Auditors focus on the governance around the valuation — the independence of the pricing committee from the investment team, the consistency of methodology between periods, the treatment of stale prices and the handling of assets where the model inputs are unobservable. A manager that cannot demonstrate a documented, independently reviewed valuation process has a finding regardless of whether the numbers were right.
Client money and custody is the second. The regime is prescriptive: segregation, trust status, daily internal reconciliations, external reconciliations, acknowledgement letters from banks in the prescribed form, and a resolution pack that would allow a return of assets if the firm failed. Breaches here are reportable and consequential — see our guide to CASS breaches.
Fee calculation is the third and the most underrated. Management and performance fees are calculated by the manager, on values the manager produced, under contracts that are frequently bespoke. Errors run in both directions and accumulate silently. Testing a sample of fee calculations back to the underlying agreements finds problems in a surprising proportion of firms.
Delegation is the fourth. Most managers outsource administration, custody and sometimes dealing. The regulatory responsibility does not transfer, so the audit examines the oversight: what reporting the firm receives, what it does with it, and whether it relies on a controls report from the provider without reading the exceptions in it.
Regulatory capital and the prudential layer
Investment firms operate under the investment firm prudential regime, which sets own funds requirements by reference to permanent minimum capital, fixed overheads and activity-based K-factors, and requires each firm to run an internal capital adequacy and risk assessment. Audit work interacts with this at the year end — the own funds figure derives from the audited balance sheet, and the fixed overheads requirement derives from the audited cost base.
The recurring finding is a firm whose regulatory returns were prepared from management figures that later moved on audit, leaving reported capital resources overstated for a period that has already been reported to the regulator.
Preparing for it
The firms that get through this cleanly do four things: they close the year end properly rather than treating the regulatory reports as the priority; they maintain the client money reconciliations and the evidence of review continuously rather than reconstructing them; they keep the valuation committee minutes in a form that shows judgement being exercised; and they read their outsourced providers' controls reports and document the exceptions and their response.
The firms that struggle are usually those whose growth outpaced their operations function — more assets, more strategies, more client types, the same three people and the same spreadsheets.
Acumon audits asset managers and investment firms through financial services audit and CASS audit work, with outsourced internal audit for firms needing assurance between year ends. If your client money reconciliations are reviewed only when the auditor asks, that is the gap to close first.