Background Information for RIAs Concerning SAS 70 Type II Audit Reports by PCAOB Accountants

May 16, 2009

In light of the recent proposal by the U.S. Securities and Exchange Commission (“SEC”) to require federally registered investment advisers, whose client assets are not held or controlled by a qualified custodian independent of the investment adviser, to obtain annually a SAS 70 Type II audit report from a PCAOB registered and inspected accountant, RIA Compliance Consultants thought it might be helpful to share some background information about this type of audit report and the PCAOB.

1. What is a SAS 70 Type II audit report? The American Institute of Certified Public Accountants (“AICPA”) has developed auditing standards for services organizations known as Statement on Auditing Standards No. 70: Service Organizations (“SAS 70”). The Type II SAS 70 audit report (also known as a “Report on Controls Placed in Operation and Tests of Operating Effectiveness”), which will report the internal controls in place and test the effectiveness of such internal controls for period of six to twelve months.

2. What will be the scope of a SAS 70 Type II audit report under the proposed SEC rule? Based upon SEC Chairman Schapiro’s speech, it appears that the scope of this SAS 70 Type II audit report will focus upon the custody controls of the registered investment adviser.

3. What is the PCAOB? According to its website, “The Public Company Accounting Oversight Board (“PCAOB”) is a private-sectior, non-profit corporation, created by Sarbanes-Oxley Act of 2002, to oversee the auditors of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, fair, and independent audit reports.”

4. How can I find an accountant registered and inspected by the PCAOB? The PCAOB maintains a list of PCAOB registered public accounting firms. Click here for a list of such accounting firms.

Once the SEC posts the text of the proposed amendments to its custody rule for federally registered investment advisers along with its interpretative release, RIA Compliance Consultants will provide its readers with further guidance about the scope of the proposed SAS 70 Type II audit report for a registered investment adviser using an affiliated qualified custodian.

Posted by Bryan Hill
Labels: Custody, SAS 70 Audit Report