Understanding CIMA’s Audit Waiver Guidance:

11 Mar 2025

When Can a Fund Skip the Annual Audit?

Did you know that, under the right circumstances, a Cayman Islands mutual fund can skip its annual audit? While most funds must submit audited financial statements to CIMA every year, there are exceptions. Let’s break down when and how an audit waiver might apply to your fund.
In the Cayman Islands, regulated funds are generally required to submit audited financial statements to the Cayman Islands Monetary Authority (CIMA) on an annual basis. However, there are certain circumstances in which CIMA may grant an exemption from this requirement through an audit waiver. In July of 2020 CIMA issued its Regulatory Policy for Exemption from Audit Requirements for a Regulated Mutual Fund (the “Policy”). Understanding the Policy is essential for fund operators, directors, and managers seeking regulatory relief while maintaining compliance.

When Can an Audit Waiver Be Granted?

CIMA has outlined in the Policy specific circumstances under which a fund may be eligible for an audit waiver. According to the regulatory guidance, an audit waiver may be considered in the following eight situations:

1. The Fund Has Not Launched but Does Not Wish to De-Register

Some funds register with CIMA but delay launching due to market conditions, investor commitments, or other strategic reasons. If a fund remains inactive but intends to maintain its registration, CIMA may consider granting an audit waiver, as there would be no financial activity to audit.

2. The Fund Has Not Launched and Is Being Liquidated or Wishes to De-Register

If a fund has been registered but has never commenced operations and decides to wind down or de-register, it may not make sense to undergo an audit. In such cases, CIMA may waive the audit requirement, particularly if the fund can demonstrate that it never engaged in investment activity.

3. The Fund Has Launched but Has Been Unsuccessful in Raising Sufficient Capital for Sustainability

Funds that have launched but failed to attract enough capital to operate viably may struggle to meet audit requirements. If a fund cannot justify ongoing costs due to insufficient investor participation, it may apply for an audit waiver while considering its next steps.

4. The Fund Is Unable to Obtain Audited Accounts Due to Events Such as Bankruptcy Proceedings, Legal or Regulatory Enforcement Actions

A fund facing bankruptcy or enforcement actions may not be in a position to complete an audit. Legal or financial barriers, such as the loss of access to records or ongoing litigation, may prevent auditors from completing their work. In such cases, CIMA may grant a waiver to avoid imposing an undue burden on a distressed fund.

5. The Fund Has Been Placed in Compulsory Liquidation, and CIMA Is Satisfied with the Appointment and Scope of the Liquidator’s Review

If a fund is subject to court-ordered liquidation, CIMA may accept the liquidator’s review as sufficient for oversight purposes. The key consideration is whether the appointed liquidator’s scope aligns with regulatory expectations and ensures investor interests are protected.

6. The Fund Is Being Voluntarily Liquidated and Has Appointed a Third-Party Liquidator

A fund in voluntary liquidation that has engaged a qualified third-party liquidator may seek an audit waiver if the liquidation terms require a review covering the period since the last filed audit. CIMA will evaluate the scope of the liquidator’s review before granting a waiver.

7. The Fund Is Transferring to Another Jurisdiction Within Six Months of Its Last Audited Financial Year-End

When a fund decides to re-domicile, it may apply for an audit waiver if it has already completed its most recent audit in the Cayman Islands. CIMA typically grants the waiver to avoid duplication of audit requirements in both jurisdictions, provided the transition occurs within six months.

8. The Fund Is Dissolving by Way of a Merger Within Six Months of Its Financial Year-End

If a fund is merging with another entity, an audit waiver may be considered if an audit has been completed or is due to be filed for the most recent financial year. CIMA aims to streamline regulatory obligations in cases where a fund will no longer exist as a separate entity.

9. Exceptional Circumstances and Supervisory Discretion

Beyond the eight defined situations, CIMA retains the authority to grant an audit waiver under other exceptional circumstances. Such requests are evaluated on a case-by-case basis, and funds must provide sufficient supporting information to justify the exemption. CIMA exercises absolute supervisory discretion in these cases, ensuring that investor protection and regulatory integrity remain paramount.

If a fund applies for an exemption for two consecutive years, CIMA may ask for additional information from the fund’s operator or administrator about the reasons for the fund’s inability to produce audited accounts.

Navigating the Audit Waiver Application Process

So, how do you actually get an audit waiver? CIMA won’t just hand them out—you’ll need to make a solid case. Here’s how it works.
The Cayman Islands Monetary Authority (CIMA) doesn’t just hand out waivers on request, you’ll need to provide the right documentation and a clear explanation of why your fund qualifies. Here’s how it works, broken down into straightforward steps.

Step 1: Justify the Request

Every audit waiver application must come with a compelling reason explaining why the fund is unable to complete its annual audit. The specific documents required will depend on the fund’s situation. Let’s go through them one by one.

If Your Fund Never Launched but Wants to Stay Registered

Not every fund that registers with CIMA ends up launching. If your fund never got off the ground but doesn’t want to deregister, you’ll need to submit:

An affidavit from an operator (director, general partner, or trustee) explaining:

Why the fund didn’t launch.
Why it doesn’t want to be deregistered.
That no investors have subscribed to the fund.

If Your Fund Never Launched and Wants to Deregister

If your fund never launched and is ready to wrap things up, you’ll need to provide:

An affidavit from an operator confirming that the fund never carried on business as a mutual fund and explaining why.
A confirmation letter from a trusted service provider (administrator, registrar, transfer agent, or liquidator) confirming that no investor subscriptions were ever accepted.

If Your Fund Launched but Couldn’t Raise Enough Capital

Sometimes, despite best efforts, a fund just doesn’t attract enough investment to be sustainable. In this case, CIMA requires:

An affidavit from an operator confirming:

That the fund failed to raise enough capital to be viable.
That no further subscriptions are being accepted.
That any investor funds received have been returned.

If Your Fund Can’t Obtain an Audit Due to Extraordinary Circumstances

Certain situations, like bankruptcy proceedings, legal troubles, or regulatory enforcement actions, might make it impossible to complete an audit. If that’s the case, instead of audited accounts, CIMA will accept:

Agreed-upon procedures reports

Liquidator’s reports

If Your Fund Is in Voluntary Liquidation with a Third-Party Liquidator

Funds undergoing voluntary liquidation with an independent liquidator must provide a liquidator’s report covering key financial activities since the last audit. This report should include:

Subscription and redemption reviews
Bank reconciliations
Shareholder register checks
Performance and management fee recalculations
Review of creditors and accruals
Solvency assessment
Compliance with laws and regulations

If Your Fund Is Moving to Another Jurisdiction

If your fund is transferring to another jurisdiction within six months of its last audit, you’ll need to provide specific information outlined in CIMA’s Regulatory Procedure (which varies by jurisdiction).

If Your Fund Is Merging with Another Fund

If your fund is dissolving due to a merger, within six months of its last audit, you’ll need to submit:

The terminating fund’s required documentation per CIMA’s Regulatory Procedure. If merging with a non-CIMA-regulated fund, you’ll also need financial statements covering its final operating period.
The surviving fund’s audited financial statements at the next audit period, including financial information from the dissolved fund.

Step 2: Affidavits and Additional Evidence

When affidavits are submitted, CIMA will review them to determine whether they provide sufficient justification for waiving the audit. If needed, they may request additional evidence before granting the waiver.

Step 3: Audit Waiver for Deregistering Funds

If you’re requesting an audit waiver as part of a fund’s deregistration, make sure to also submit the necessary deregistration documents and fees as required under CIMA’s Regulatory Procedure.

Conclusion

While the audit waiver process provides relief to certain funds under specific conditions, it is not an automatic exemption. Fund operators must carefully assess whether they qualify under CIMA’s prescribed circumstances and ensure that their application is well-documented. Seeking professional guidance can help streamline the process and improve the chances of approval.
If you’re running a Cayman mutual fund and wondering whether you qualify for an audit waiver, we’ve got you covered. Let’s chat and see how we can make the process smoother for you! At Vale Law, we’re here to help you make sure your cookie jar is airtight, fair, and brimming with potential!

Shelley Do Vale: shelley.vale@valelaw.ky

Santiago Mtnez-Carvajal: sc@valelaw.ky