(4) SEC regulations prohibit the provision of such services to an audit client if the auditor expects the results of such services to be subject to the firm`s audit procedures at a later date. The Rules do not include ad hoc evaluations of separate elements or other programmes, such as agreed procedures. B related to the Client`s internal controls or operational audits that do not relate to internal accounting controls, financial systems or financial statements. If it is presumed that the advisor is in custody and is not eligible for any of the exceptions listed below, the funds must be managed by a qualified custodian bank and the advisor must ensure that he or she meets the relevant requirements for the safekeeping of assets. «Independence is a cornerstone of audit quality,» said Cindy Fornelli, Executive Director of the Center of Audit Quality (CAQ). «This warning is an important reminder for companies to review applicable rules and regulations and review their company`s policies on this critical issue as needed.» Under rule 206(4)-2 of the Advisors Act, also known as the custody rule, it is fraudulent for a registered investment advisor to hold client funds or securities unless the advisor takes certain necessary steps to protect the assets. Over the past year, the SEC`s Enforcement Division has been relatively active in investigating and enforcing the rule — which at most requires evidence of negligence — with a number of complex provisions that can cause uninformed people to stumble. An auditor may provide certain services to a consultant who does not rely on the audit provision. Under the independence standards of the American Institute of Certified Public Accountants (AICPA), the auditor may provide certain services that would be prohibited under the SEC`s independence rules. An investment advisor who is now required to register with the SEC must be sure to fully understand the nature of any non-audit related services that the accounting firm provides to the audited firm or its affiliates.

Prohibited services must be discontinued prior to the start of the audit and professional engagement periods (which may begin before the date of registration). Here are some common non-audit services requested by consultants: Since many consultants use the audit provision for the VIPs they manage, it is important to recognize that the auditor of their PIV must not only be registered and inspected by the PCAOB, but also that audits are subject to these very strict SEC independence rules. It is therefore important that the consultant is aware of these independence considerations. One of the focal points of this CAQ alert (launch link below) describes the SEC`s ban on financial statement services (which has been clarified to include financial statement preparation services). In general, the SEC has noted that a SAS 70 Type II report meets the requirements of an internal control report. Under a separate amendment to the SEC`s RIA record retention rule (Rule 204-2), the SEC requires the AIR to keep a copy of all internal control reports it receives for five years. Independent verification/surprise checks. The AIR must enter into a written agreement to review the funds and securities held with an accountant who meets the independence requirements of SEC Rule 201(b) and (c) and who is registered with the Public Company Accounting Oversight Board (PCAOB) and who is registered with the Public Company Accounting Oversight Board (PCAOB) in accordance with its rules. The agreement with the chartered accountant must provide: (5) Special regime for limited partnerships and limited liability companies. If you or a related party hold a general partner of a limited partnership (or a managing member of a limited liability company or a comparable position for another type of mutual fund vehicle), the bank statements required under subsection (a) (3) of this section must be sent to each limited partner (or member or other beneficial owner). Indirect custody by a related party.

The custody rule provides that an RIA holds all client funds or securities held directly or indirectly by a «related person». A related party is any person who is directly or indirectly controlled or controlled by the RIA, or any person under common control with the RIA. Where an RIA indirectly holds the Client`s assets through a related party, the same requirements apply as apply to the direct custody of the RIA, except that the internal control reporting requirements apply to the related party and not to the RIA. However, if a related party is «operationally independent», there is no need for an independent audit of clients` funds and securities. The custodians of the affiliates are not deemed to be «operationally independent» unless each of the following conditions is met and other circumstances can reasonably be expected to affect the operational independence of the related person: (6) investment advisors acting as qualified custodians. If you hold client funds or securities under this section as a qualified custodian in connection with the advisory services you provide to clients, or if you retain custody because a related party manages client funds or securities: The following tables provide some useful tips to simplify the custody rule and determine whether you meet the requirements. The categorically prohibited services covered by the SEC rule are: How should SEC-registered and state-registered investment advisors apply the SEC`s independence rules? An RIA holds a client`s funds or securities in custody if it holds them, directly or indirectly, or if it has the power to take possession of them. An RIA is also deemed to be in custody if certain persons associated with the RIA hold or are authorized to hold client funds or securities. The custody rule provides three examples of situations in which an AIR would be considered a custodian: In addition to a custody review, the custody rule requires an advisor: How the SEC auditor independence rules are triggered (i) You have custody of funds and securities solely because of your authority to make withdrawals from accounts receivable to pay your advisory fees; and (6) SEC rules prohibit the provision of such services to an audit client if the auditor expects the results of such services to be subject to the company`s audit procedures at a later date. .