The AICPA has discussed this "inspection gap" issue with the SEC and while the SEC acknowledges that a definite "inspection gap" exists, its analysis indicates that the vast majority of pooled funds already receive audits by PCAOB-inspected and registered firms such that the overall impact of this gap is not extensive.
If your firm is impacted by this issue, the SEC wants to hear from you directly. The AICPA has raised the concern and been advised that the SEC will carefully evaluate this feedback. Please review the AICPA's formal proposal and follow-up letter to the SEC which would, if approved, remedy this inspection gap. Input should be provided by emailing IMOCA@sec.gov or calling the Office of the Chief Accountant, Division of Investment Management, at 202.551.6918. To help the AICPA monitor this issue, please share with us your comments to the SEC by emailing a copy of your comments to email@example.com.
On October 12, 2010, the SEC issued a No-Action Letter applicable to any investment adviser whose auditor meets specific criteria. In recognition of the fact that this relief is very limited, the AICPA submitted its own request for no-action relief on December 9, 2010. In a letter from the SEC dated December 23, 2010, the AICPA's request for no-action relief was denied. The AICPA intends to pursue resolution for our members who are impacted by this issue.
Additional guidance issued by the SEC
SEC Approves Custody Rule (December 2009)
The Securities and Exchange Commission (SEC) approved the Custody Rule of the Investment Advisers Act of 1940 on December 16th. Overall, the AICPA was in support of the proposed Rule as a means to strengthen investment protections in the U.S. securities markets. AICPA made specific recommendations to the proposed rule amendments, including that the focus of the applicability of the surprise examination requirement be on those advisers that pose the greatest degree of risk. The final rule exempts investment advisers who are deemed to have custody solely because they deduct advisory fees. Read a summary and analysis of the final SEC custody rule.