Fund Accounting Interview Questions

“I studied commerce and did a short internship in a general accounting team, mostly posting invoices and helping with the month-end close. I liked the accuracy side of it, but it felt slow. Then I spent a few weeks shadowing a fund administration team, and it clicked. Every day ended with one number, the NAV, and it had to be right before a deadline, with prices, trades and corporate actions all feeding into it. I liked that mix of accounting and markets. Since then I've taken a course on investment funds and learned how trades flow from booking to settlement. I want to start in a NAV team, get very solid on the daily cycle, and then move toward reviewing more complex funds.”

“My understanding is that the day is built around getting the NAV out on time. In the morning you pick up the previous day's trades, cash and positions from the custodian or prime broker, and you reconcile them against the fund's books so you know you're starting clean. Then you load prices, check any corporate actions for the day, book income and expense accruals, and record subscriptions and redemptions. Before the cut-off you run checks on the NAV, like how much it moved compared with the market and whether any price looks odd, and a reviewer signs it off. After release you clear any breaks you found so tomorrow starts clean. It's a repeatable cycle, but each day brings something different to investigate.”

“I actually like having a fixed rhythm, but I know that's also when mistakes creep in, because you stop really looking. So I work from a checklist every day, even for funds I know well, and I tick it off rather than doing it from memory. Before I send anything to review, I check my own work as if I'm the reviewer, especially the day's move and the biggest contributors. I also try to treat every odd number as a small puzzle rather than a nuisance, because that's how I learn how the fund really works. And I plan my morning so the reconciliations and corporate actions are done early. That way the last hour before cut-off is for checking, not for catching up.”

“NAV is net asset value, the value of the fund that belongs to its investors. You take total assets, which are the investments at their market value, cash, receivables for securities sold, and accrued income like dividends and interest. Then you subtract total liabilities, such as payables for securities bought but not settled, accrued management and admin fees, other accrued expenses, and redemptions owed to investors. That gives the net assets. NAV per share is net assets divided by the number of shares or units in issue on that day. So if a fund has net assets of ten million and one million units in issue, the NAV per unit is ten. If a fund has several share classes, you work out each class's share of net assets and divide by that class's units.”

“First I make sure all the inputs are in: the trades from the investment manager, the custodian or prime broker files for cash and positions, and the pricing and FX feeds. I book any trades that didn't come through automatically and check corporate actions due that day. Then I reconcile cash and positions against the custodian so I know the holdings are right. Next come prices, where I look at exceptions like stale or large moves, then income and expense accruals, and the day's subscriptions and redemptions. Once the NAV is calculated, I run the checks: the day's move against the benchmark or a proxy, the biggest contributors, and any ratios that look off. A reviewer then signs it off, and it goes to the client and the transfer agent. Any open item gets logged and cleared the next morning.”

“The investment manager executes the trade with a broker and it's captured in their order system, then sent to us as a trade file. Funds usually account on trade date, so on the day of the trade I book the purchase: the security goes into the portfolio at cost including commission, and a payable for securities purchased goes on the balance sheet. From that point, the price change on the security flows into the NAV. Meanwhile the trade is confirmed and matched between the manager and the broker, and settlement instructions go to the custodian. On settlement date, the cash leaves the custodian account and the payable is cleared. For a sale it's the reverse, with a receivable until the cash arrives. If a trade fails to settle, the payable or receivable just stays open, and I chase it through the reconciliation.”

“For a cash dividend, funds normally recognise the income on the ex-date, because that's when the share price drops by roughly the dividend and the fund has earned it. So on ex-date I book dividend income and a dividend receivable, based on the shares held going into ex-date, and if withholding tax applies I book it at the rate that applies to that fund. On pay date the cash arrives and I clear the receivable, then check the amount against the custodian. A stock split is different. It's not income. If there's a two-for-one split, the holding doubles and the cost per share halves, so the total cost stays the same, and the price feed should show half the price. The main risk is timing: if the quantity updates but the price doesn't, or the other way round, the NAV jumps for no real reason.”

“I wouldn't pick one and hope. First I'd check the issuer's own announcement, since that's the primary source, and compare the key terms: the ratio, the ex-date and pay date, and any cash amount or election options. Often one of the two sources has a typo or hasn't picked up an update. I'd raise the difference with both the custodian and the vendor so they can correct it. If the event is due before it's resolved, I'd agree with my reviewer which terms to use, usually the ones matching the issuer announcement, and I'd make a note on the file. In the end, the custodian's actual payment is what settles, so on the pay date I'd reconcile what we booked with what arrived, and adjust if needed.”

“An unchanged price for five days is a flag, because even quiet bonds usually move a little with interest rates. I'd first check whether the feed itself is the problem, like the security mapped to the wrong identifier or the vendor dropping it and carrying the last price. Then I'd look for other evidence: a second vendor, broker quotes, or how similar bonds from the same issuer have moved over those days. If the other sources show a different level, I'd raise a price challenge with the vendor and take it to the pricing team or valuation committee as the policy says, and they'd decide which price to use. Either way I'd record what I checked and what was decided, because an auditor will ask why a price didn't move for a week.”

“A cash reconciliation compares the cash balance in the fund's books, currency by currency, with the bank, custodian or prime broker statement, usually movement by movement. Typical breaks are timing differences, like a trade that settled a day late, bank charges or interest the books don't have yet, a dividend paid at a different amount because of withholding tax, or an FX conversion at a different rate. A position reconciliation compares the quantity of each security the fund holds with what the custodian or broker holds. Breaks there are usually trades that weren't booked or were booked twice, a failed settlement, or a corporate action like a split or a merger that one side has processed and the other hasn't. For both, the aim is to explain every break, fix what's ours, and chase the counterparty on what's theirs.”

“I'd start by checking the opening balances agreed yesterday, so I know the break is new. Then I'd match the day's cash movements line by line between the custodian statement and our books. The difference usually shows up as one or two items. It could be a payment the custodian made that we haven't booked, like a redemption paid out, a purchase that settled or a fee debited directly. It could be something in our books that hasn't hit the custodian yet, like a sale we moved to cash on its settlement date that actually failed, so the cash isn't there. Or it could be a duplicate entry on our side. If it's our error, I correct it before the NAV. If it's the custodian's, I raise it with them with the trade details. Either way, I note it on the rec so the reviewer can see what it was and who owns it.”

“I accrue bond interest every day using the bond's own terms: face value times the coupon rate, spread over the period using its day-count basis, like actual over actual or thirty over 360, depending on the bond. So income builds up daily as accrued interest receivable, and it's part of the NAV. If the fund buys the bond between coupon dates, the buyer pays the seller the clean price plus the interest accrued since the last coupon. That accrued part isn't part of the bond's cost and it isn't income for the fund, so I book it as purchased accrued interest, a receivable. On the coupon date the fund receives the full coupon. Part of it settles the purchased interest, and only the part earned while the fund held the bond counts as income. For a sale it's the reverse: the fund receives sold interest from the buyer.”

“When an investor subscribes, cash comes into the fund and new units are issued at the NAV per unit, so net assets go up and units go up in the same proportion, and the NAV per unit shouldn't move. A redemption is the reverse: units are cancelled and a redemption payable is booked until the cash is paid out. If the NAV per unit does move because of capital activity, something is wrong, like an order booked at the wrong price or twice. Most open-ended funds use forward pricing, which means an order received before the dealing cut-off is dealt at the next NAV calculated, not the last published one. That matters because if people could buy at yesterday's price after seeing today's market move, they'd make money at the expense of the investors already in the fund.”

“From what I read, your team services a mix of hedge funds and private equity funds as well as some open-ended funds, and you handle both the NAV and investor services side. That mix is what draws me. In my current role I work only on long-only open-ended funds, so I know the daily NAV cycle well, but I've had very little exposure to derivatives, partnership allocations or capital calls. I'd like to keep using what I'm good at, which is clean daily NAVs and tidy reconciliations, while learning how hedge fund and private equity books work. A team that covers all three structures is a good place to build a complete picture of fund accounting.”

“I think it's one of the best parts of the setup. Investors buy and sell at the NAV, so a second pair of eyes is a basic control, and I don't take it personally. When I'm the preparer, I try to make the reviewer's job easy by leaving clear notes on anything unusual, like a stale price or an open break, so they don't have to hunt for it. If they find something, I'd rather hear it then than from the client. When I review someone else's work, I try not to just tick boxes. I look at the day's move and ask whether it makes sense, then check the items that carry the most risk. And I give feedback privately and with the reason, so the person learns something, not just that they got it wrong.”

“At my last company I was doing a daily NAV for an equity fund, and in my pre-release check the fund was up much more than its benchmark on a fairly flat day. I looked at the top contributors, and one holding showed a big jump. It turned out the company had done a reverse split. The price feed had the new, higher price, but our position still showed the old quantity because the corporate action hadn't been booked. I booked the reverse split, the move came back in line with the benchmark, and the reviewer signed it off a few minutes before cut-off. Afterwards I added a check to our morning list that compares any price move above a set tolerance with the corporate actions calendar, so a split or consolidation gets caught at the start of the day, not at the end.”

“In my first year I processed a rights issue on a holding and booked the new shares on the wrong date, a few days before they were actually issued to the fund. The position rec flagged it the next morning because the custodian didn't show the shares yet. I went to my reviewer straight away and explained what I'd done. The effect on the NAV was very small and within the fund's error threshold, so no NAV had to be restated, but we still corrected the entries and noted it in the error log. I realised I had read the announcement too quickly and missed the difference between the ex-date and the issue date. Since then, for any corporate action with an election or more than one date, I write the key dates down before booking and ask a second person to check the terms.”

“A management fee is an annual rate applied to net assets, as set out in the offering documents. I accrue it every valuation day, so it's the net assets times the annual rate times the days in the period, divided by the day-count basis the documents give, which could be 360 or 365. It's paid monthly or quarterly from that accrual. A performance fee is the manager's share of gains, but only on new gains. The high-water mark is the highest NAV per share at which a performance fee was last paid, so if the fund drops and then recovers, the manager earns nothing until it's back above that level. Some funds also have a hurdle rate the fund must beat. I accrue the performance fee in each NAV, and it can reverse if performance falls, until it crystallises at the period end or when an investor redeems.”

“I'd say no to processing it at today's NAV, politely but clearly. The dealing cut-off is set in the fund's documents, and an order that arrives after it goes into the next dealing day. Accepting it late is known as late trading. It's unfair to the investors who stay in the fund, because the person redeeming could be reacting to market news after the cut-off, and it can be a regulatory breach in many places. I'd explain that to the sales team and offer to process it at the next NAV straight away. If they had evidence the order was actually received on time, like a timestamped email that got stuck, I'd pass that to the transfer agency and compliance to decide under the fund's exception policy. I wouldn't make that call on my own, and I'd keep a record of the request.”

“At my last company I had four daily funds due by the same cut-off, and one morning the pricing vendor's file for fixed income came in late and incomplete. Two of my funds were equity only, so I finished those first and got them reviewed, which took the pressure off. For the two bond funds, I told my team lead and the client contacts early that prices were delayed, rather than going quiet. When the file arrived, a few bonds were still missing, so I used the backup source set out in the pricing policy, flagged each one, and asked a colleague to double-check my exceptions while I ran the NAV checks. All four went out, the last one a few minutes late, which the client had already agreed to. The next day we asked the vendor for an earlier alert when files are delayed.”

“At my last company a portfolio manager emailed saying our NAV for his fund was lower than his own estimate for the day. Rather than just saying ours was right, I broke our move down into its parts: price movement on the holdings, FX, income accruals, fees and expenses. Most of it matched his numbers. The gap came from two things. His estimate didn't include the day's management fee and audit fee accruals, and he was using a close price for one foreign stock that was from a different market close than our pricing policy used. I sent him a short table showing each piece and the policy reference for the price. He agreed with the fee point straight away, and we set up a call with our pricing team on the close time. Nothing needed correcting, but he now gets that breakdown on request.”

“First, I'd tell my reviewer and team lead straight away that this fund might be late, so nobody is surprised at the cut-off. Then I'd go to the biggest contributors to the day's move rather than scrolling through everything. I'd check for a price that jumped or went stale, a quantity that changed because of a missing or duplicate trade, a corporate action like a split that's half booked, a wrong FX rate, or a subscription or redemption booked at the wrong price or twice. Usually one or two lines explain most of it. If I find it, I fix it with the reviewer watching and release on time. If I can't explain the move by the cut-off, I wouldn't release a number I don't believe. We'd tell the client, agree a short delay if their documents allow it, and log the incident.”

“An open-ended mutual fund usually strikes a NAV every business day, has lots of investors buying and selling units at that NAV, holds mostly liquid securities, and follows strict public fund rules, whether that's a securities regulator's rules in one country or a directive in another. A hedge fund usually has a monthly or weekly NAV, uses derivatives, short selling and leverage through a prime broker, and charges a performance fee, so you need a high-water mark and often series of shares or partnership capital accounts to keep it fair between investors. A private equity fund is closed-ended: investors commit capital, which is called as deals happen, holdings are mostly unlisted and valued quarterly using models, and distributions follow a waterfall that decides when the manager earns carried interest. So the daily mechanics, the investor records and the valuation work are really quite different.”

“In a master-feeder setup, the trading happens in one master fund, and two or more feeder funds invest into it. The feeders usually exist because different investors need different wrappers, for example taxable and tax-exempt investors, or investors in different places. Each period, I work out each feeder's ownership of the master based on its capital before that period's subscriptions and redemptions take effect. The master's income, expenses and realised and unrealised gains are then allocated to the feeders in those proportions. Then the feeder's own subscriptions and redemptions go in, which changes the ownership for the next period. At feeder level I book the allocated result, add feeder-only items like its own admin fee or a feeder-level management fee, and calculate the feeder NAV. The check I always do is that the feeders' allocated capital adds back to the master's total.”

“At my last company one of our funds held a company that was acquired in a cash-and-stock merger, and holders could elect more cash or more shares. The investment manager sent their election late and the custodian applied the default option. Our books had been set up on the manager's preferred option, so on the pay date the position rec showed fewer new shares and more cash than we had booked. I pulled the custodian's notice, confirmed the default had been applied, and agreed with the manager that the custodian's result was final. Then I rebooked the event: removed the old holding, brought in the new shares with the right share of the original cost, booked the cash part, and checked the realised gain on the cash leg. After that we started confirming every election with the custodian in writing before its deadline, and we book only what's been confirmed.”

“I'd start with the fund's valuation policy, because it sets the order of price sources and what to do when there's no trade. For a thinly traded bond, that might be an evaluated price from a pricing vendor, or broker quotes, which use observable market inputs. The fair value hierarchy, used under both IFRS and US GAAP, puts holdings into three levels. Level 1 is an unadjusted quoted price for the same asset in an active market, like a listed share that traded today. Level 2 uses observable inputs other than that, such as quotes in a less active market or a yield from similar bonds. Level 3 relies on unobservable inputs, like a model for a private company. So a bond that stops trading can drop from Level 1 or 2 to Level 3, and then it needs model support, documented judgement and sign-off from the valuation committee.”

“I'd be careful, because the manager has a conflict: a higher price means a higher NAV and higher fees. I wouldn't just replace the broker quotes with their price, and I wouldn't dismiss it either, because sometimes managers know something real, like a recent deal or new information. I'd ask them for the support behind their price, such as a recent transaction, a model or comparable trades. Then I'd compare it with the independent sources we have and check what the valuation policy says about manager prices and overrides. If the gap is large, it goes to the valuation committee or pricing oversight, which is separate from the investment team, to decide. Whatever they decide, I'd keep the evidence and the decision on file. If it becomes a pattern with the same manager, I'd make sure compliance knows about it.”

“When I joined my current team, one fund had a small cash break on its base currency account that had been on the rec for about five months. It was small, so everyone had rolled it forward with a note saying under investigation. I took it on. I went back to the month when it first appeared and compared every movement on the custodian statement with our books. The difference came from a foreign dividend that the custodian had converted into the base currency automatically at its own rate, while we had booked the conversion at the day's closing rate, and the gap was never booked as a realised FX loss. I prepared the correcting entry with support, got it approved, and the break closed. I also asked for a rule that any break older than one month gets escalated to the team lead with a named owner.”

“In my current team we used to match the prime broker's daily trade file with our booked trades by eye, sorting two spreadsheets and ticking rows. It took about an hour each morning on our busiest fund, and a mismatched quantity was easy to miss. I built a simple matching sheet using lookup formulas that matched on trade reference, security, quantity and amount, and highlighted anything that didn't match or was missing on one side. Before we switched, I ran it next to the manual process for two weeks and compared the results each day, and it caught everything we caught plus two small differences we'd missed. My lead approved it and it's now the standard step. The match takes a few minutes, and we spend the saved time actually investigating the breaks instead of finding them.”

“In a private equity fund, investors sign a commitment, but they don't pay it all on day one. When the manager needs money for a deal or for fees, the fund sends a capital call, and each limited partner pays their share based on their commitment. I track each investor's commitment, amounts called and the unfunded balance. When the fund sells an investment, proceeds are distributed through the waterfall in the partnership agreement. A common order is: first, investors get their contributed capital back; second, they get a preferred return, often called the hurdle; third, the general partner gets a catch-up until it has its agreed share of profits; and after that, profits are split between investors and the manager's carried interest. A European waterfall applies this to the whole fund, while an American one applies it deal by deal, which can mean a clawback later.”