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Under the Mutual Funds Law of the Cayman Islands, a Cayman Islands investment fund registered with the Cayman Islands Monetary Authority (“CIMA”) is subject to a mandatory, annual audit by an auditor approved by CIMA (see list of approved auditors on These audited accounts must be sent to CIMA within six months of the end of the Cayman Islands fund’s financial year or within such extension of that period as CIMA may allow. However, some Cayman funds would prefer not to incur the cost of an audit at all. In such cases, the Cayman fund’s investment managers may encourage the Cayman fund’s directors to apply for an exemption from the Cayman fund’s audit requirement. But what are these costs in the first place and why would a Cayman fund seek to avoid them?.

Audit fees

Experience with audit firms suggests that drivers for the cost of the audit of a Cayman Islands investment fund registered with CIMA include the size of the fund’s assets, the fund’s investment strategy and risk profile. Analysis of the foregoing typically results in a fee quote in the range of USD 25,000 for the audit of a single Cayman fund with liquid assets. Fees are expected to be higher for a Cayman fund with hard-to-value assets.

Notwithstanding that a Cayman fund’s directors may have budgeted for these fees, sometimes things do not go as planned. For example, the Cayman fund may have launched with initial seed capital with the expectation that assets would multiply and new investors would be attracted. However, after twelve months of marketing, the Cayman fund finds that it has been unsuccessful in raising the appropriate capital for sustainability. At that stage, the investment manager and the Cayman fund’s board of directors begin to wonder whether it is worth incurring the cost of an audit for that particular year. This gives rise to the desire to apply to CIMA for an exemption from the audit requirement.

CIMA’s Regulatory Policy

CIMA has issued a regulatory policy whereby CIMA may, in its discretion, decide to exempt a regulated Cayman Islands fund from annual audit requirements, either absolutely or subject to such conditions as CIMA may think fit. If granted, the exemption may be in relation to the whole or part of any financial year of the Cayman Islands fund.

As an illustration, take the above example of a Cayman Islands fund registered with CIMA which has been unsuccessful in raising the appropriate seed capital for sustainability. In order for the Cayman Islands fund to be considered for an exemption in this specific case, CIMA will require the following from the Cayman Islands fund:

♣♣ an affidavit from the directors of the Cayman Islands fund attesting that agreed upon procedures have been carried out that substantiate either that no subscriptions have been received from investors, that all subscriptions received from investors have been returned to the investors or that all subscriptions received from investors are segregated and accounted for separately from any other assets; and

♣♣ a copy of the agreed upon procedures referred to above, performed by the Cayman Islands fund’s administrator and/or accountants.

It is important to note that the submission of the above information to CIMA is not a guarantee that an exemption will be granted. CIMA maintains the right to accept or reject any such application and may require further information in order to make an assessment whether to grant an exemption.


The financial bottom-line is key for any fund. If the fund’s directors can lighten the impact of expenses on the bottom line, investors will appreciate it. Lowering audit fees and gaining an audit exemption are two ways that this can be achieved. It is one less payment that a Cayman Islands fund has to shell out in addition to the remuneration paid to its board of directors and other service providers.

In the case of an application for an audit exemption, Cayman funds registered with CIMA should be reminded that such an exemption will not be considered throughout the relevant Cayman fund’s entire life. In fact, CIMA will generally not consider applications for an exemption for three consecutive years and any exemptions to be granted by CIMA in the first or second financial year of the Cayman fund’s life is entirely in CIMA’s discretion.

Regarding specific circumstances where exemptions may be granted by CIMA, the application requirements discussed herein only relate to the circumstance where the entity is a Cayman Islands fund registered with CIMA which has been unsuccessful in raising the appropriate seed capital for sustainability. At the end of the day, it is the responsibility of a Cayman Islands fund’s directors to analyse the situation facing the Cayman Islands fund on whose board they sit and determine whether the circumstances facing the Cayman Islands fund fall within the range of circumstances which CIMA may consider for the exemption from an audit requirement (these details can be found within CIMA’s regulatory policy on the CIMA website ( This is also another reason why resident Cayman Islands directors should always be appointed to the board of a Cayman Islands fund. Such directors would be aware of these options and can assist the Cayman fund with cost savings.

About the Author:

Alric Lindsay is a corporate lawyer and an independent fund director approved by the Cayman Islands Monetary Authority. Alric is also licensed as a professional director under The Directors’ Registration and Licensing Law. Alric also acts as voluntary liquidator to Cayman Islands entities. Alric can be contacted at