In certain limited situations, fund may be to apply to the Cayman Islands Monetary Authority (CIMA) for an audit waiver. We explain how this could apply to your fund, and how to apply for the waiver if you think you’re eligible.
All regulated mutual funds and private funds in the Cayman Islands are required to submit annual audited financial statements to the Cayman Islands Monetary Authority (CIMA). However, under specific and limited circumstances, funds may apply for an audit waiver. While exemptions are not granted lightly, they may be available where the requirement to audit would provide little regulatory benefit and the fund is otherwise compliant.
When Can a Fund Apply for an Audit Waiver?
CIMA considers audit waivers only under exceptional circumstances. An exemption may be granted where the fund is otherwise compliant, no prejudice to investors or creditors exists, and the exemption does not conflict with the fund’s offering documents or constitutional terms.
The recognised grounds for a waiver include:
- Fund has not launched but does not wish to deregister
- Fund has not launched and is being liquidated or wishes to deregister
- Fund has launched but has not raised sufficient capital to operate sustainably
- Fund cannot obtain audited accounts due to bankruptcy, legal proceedings, or regulatory action
- Fund is in court-appointed (compulsory) liquidation with a suitable liquidator in place
- Fund is in voluntary liquidation and a third-party liquidator has been appointed, whose report covers all key financial and operational matters
- Fund is redomiciling to another jurisdiction within six months of the last financial year end
- Fund is dissolving by way of merger within six months of the last financial year end
In all cases, CIMA assesses the facts presented and may request further evidence before making a determination.
A waiver will not be granted purely for convenience or cost-saving reasons. The fund must present a legitimate rationale, supported by documentary evidence, and remain otherwise in good standing with CIMA. As you can see from the list of examples above, this is likely to be an exception rather than the rule.
Can You Extend the Audit Period?
CIMA may also grant an extension of the audit period in two specific cases:
- Initial audit: Up to 18 months from the date of registration for a newly registered fund
- Final audit: Up to 18 months from the financial last year-end, where the fund is preparing to cease operations
These requests must be made formally, with clear justification, and should demonstrate that investors are not disadvantaged by the extended period.
How Do You Apply for an Audit Waiver?
An application must be made through CIMA’s REEFS portal, and must include:
- A full explanation of the circumstances
- An affidavit or written confirmation from a director or service provider, as appropriate
- Supporting documentation (e.g. confirmation of liquidation, proof of no investor activity, or third-party liquidator reports)
- Confirmation that the exemption does not breach the fund’s documents
- Payment of the prescribed application fee
Where applicable, the fund must also confirm that the waiver does not prejudice creditors or investors and is not contrary to its governing documents.
What is Best Practice for Applying for an Audit Waiver?
- Plan ahead: Submit well before your annual audit filing deadline
- Be thorough: Provide all supporting evidence up front
- Good standing: Ensure other obligations (e.g. FAR, CRS/FATCA) are up to date
- Document the rationale: Board minutes and investor communications should reflect the decision to seek a waiver
Final Thoughts
Audit waivers and extensions are available, but only in very specific scenarios. Funds must demonstrate transparency, provide proper documentation, and remain compliant in all other respects.
Preparing an audit waiver application requires clear documentation and a well-supported rationale. The wb.group team regularly assists funds with these applications and with navigating CIMA’s requirements.
Contact us if you’d like some advice or practical support with your audit process.