Last month, the U.S. Securities and Exchange Commission (“SEC”) proposed amendments to the custody rule under the Investment Advisers Act of 1940, which the SEC explained are designed to increase protections for investors who entrust their funds and securities to registered investment advisers. According to the proposed rule changes, all SEC registered investment advisers will be required to hire an accounting firm to perform an annual surprise audit. The SEC has stated that it believes the surprise accounting audits will impact approximately 9,600 of the approximately 11,000 SEC registered investment advisor firms. The surprise accounting audits would be far-reaching because they would apply to all investment advisory accounts of which the registered investment advisor has any form of custody, including the ability to deduct advisory fees.
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.