In a recent episode of “Behind the Ticker,” Brett Eichenberger from Cohen & Company discussed the intricacies of auditing in the ETF and mutual fund industry. Eichenberger, based in the firm’s Cleveland office, has worked his way up over a 19-year career with Cohen & Company, which now audits over 1,800 registered funds, making it the fourth-largest auditor of registered funds in the U.S. and the second-largest in the ETF space. Eichenberger emphasized Cohen’s role in maintaining public trust through transparency and strict regulatory compliance, working with a range of investment products including ETFs, mutual funds, closed-end funds, and interval funds.
One of the central differences in auditing ETFs versus mutual funds, Eichenberger explained, lies in the valuation of securities. ETFs report returns on both NAV and market value bases, due to their trading on secondary markets, whereas mutual funds focus solely on NAV. Additionally, ETFs rely on authorized participants for capital activity through in-kind creation units, which introduces unique audit considerations, especially in managing the in-kind exchange of securities.
Eichenberger highlighted several key areas of focus in ETF audits, such as ensuring accurate valuation, particularly in complex portfolios that may include derivatives, foreign securities, or illiquid assets. For products like ETFs, Cohen & Company pays close attention to maintaining diversification standards and testing qualified income, which is essential for regulatory compliance. Eichenberger explained how Cohen’s audit teams perform regular assessments to verify all positions are accurately valued, confirming assets held in custody and ensuring that clients’ funds meet regulatory diversification requirements.
The discussion also touched on the impact of technology, including advancements in data-driven auditing that allow Cohen to move toward 100% testing of transactions, improving accuracy over traditional sampling methods. Eichenberger shared that the firm’s adoption of automation enables more efficient audits, allowing for better oversight and faster processing.
