When the original accounting standards were written, complex investment vehicles such as private equity funds were not being used. This makes private equity fund accounting differ from the methods of accounting used for other investments. The main factor creating the difference is the direct investments made by private equity funds into private companies. Unlike a hedge fund, where investments are made in just about anything and highly liquid investments are the norm, a private equity fund is focused on being rewarded far out into the future. It's quite common for the managers of a private equity fund to have the same investment objectives of a venture capital firm that invests in private companies. The end goal for a private equity fund is to be involved in an IPO or merge with a company that's already publicly traded.

Private Equity Investment Fund Activities

Private equity funds will typically invest in two types of situations. These include using a debt or equity investment in a private company or buying out a floundering company with the intention of improving their financials. In the first type of investment plan, the objective is to assist with expanding research and development, which is aimed at increasing the value of an intellectual property that belongs to a company. The second situation involves taking control of a company that needs help with their operations. In most cases, this type of company will be experiencing financial challenges as well.

A private equity fund will often utilize the skills of different specialists in order to ensure that the correct objectives are being followed. Negotiating skills must be used to obtain favorable deals. Accounting skills will also be needed to evaluate the financials of a company that a private equity fund may want to acquire. These objectives fit well with our private equity fund CFO advisory services. We have the experience and knowledge to assist with these types of situations.

Determining Valuation and Bookkeeping

Valuation is a crucial element in private equity fund accounting. The valuation of private equity fund's investments is dictated by the choice of accounting standards that are used. While fair value is used as the accounting standard for investments. This brings about a challenge as a fair value figure can differ greatly between standards. By utilizing our team of private equity fund accountants an appropriate fair value can be determined and listed in the financial bookkeeping for the fund. Our small business CPAs are experienced with this type of accounting and can help choose the appropriate methods that will assist in creating the highest profit for a fund.

Understanding Investments for Private Equity Fund Tax Planning

It's typical for a private equity fund to create an investment structure that's quite complex. This is done to limit the tax bill that is paid and will vary depending on the jurisdiction of the country or state where a fund is structured. This is where the assistance of one of our private equity fund accountants can be of assistance. Legislation can change as well as specific tax guidelines. Our private equity fund tax specialists can help with private equity fund tax planning by adjusting many structures that need to be changed.

It also helps to have the assistance of a private equity fund accountant when dealing with the way that some private equity funds make their investments. In some cases, they may decide to utilize both debt and equity. In this situation, interest payments should be reconciled. In other agreements, a fund may be getting paid via dividends by a company, which would mean that distributions have to be taken into account. We are well-versed in these type of situations and the intricacies of private equity fund tax accounting, which helps us understand tasks such as accurately separating and accounting for distributions, handling deductions for pass-through income and identifying dividend deductions when dealing with foreign corporations.


This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.