Surprise Custody Examination
Lilling provides Surprise Custody Examinations in conjunction with Rule 206(4)-2 (the “Custody Rule”).
What is a Surprise Custody Examination?
The Investment Advisers Act of 1940 mandates that its registered investment advisers have custody of client funds unless a qualified custodian maintains those funds in a separate account for each client under that client’s name or in accounts that contain only client’s funds and securities, under the investment adviser’s name as agent or trustee for the clients, in addition to other responsibilities.
Investment advisers must have a “Surprise” accountant examination to verify that the client’s funds and securities held at a custodian exist, are in the proper name, and the totals match the investment advisor’s records.
We are a PCAOB inspected firm that meets the regulatory requirements to audit investment entities of any size. Our audit approach will make your audit experience as seamless as possible.
We work with investment advisors at all stages of their life cycle including start-ups, mature entities, and ones going through the liquidation process.
Adam Lilling, CFA, CPA has experience working in equity research at UBS and credit research at Bear Stearns. Adam’s experience in finance allows our firm to work very efficiently with investment advisors and makes us a true alternative to large fee firms.
What does a Surprise Custody Examination Entail?
A typical Surprise Custody Examination may include the following procedures:
Confirmation with the qualified custodians of client funds and securities as of the date of the examination and that the client’s funds and securities are held in either a separate account under the client’s name or in accounts under the name of the investment adviser as agent or trustee for clients.
Confirmation with the client of funds and securities held in the account as of the date of the examination and contributions and withdrawals of funds and securities to and from the account since the date of the last examination; where confirmation replies are not received, the accountant should perform alternative procedures.
Reconciliation of confirmations received and other evidence obtained to the investment adviser’s records.
In addition, Lilling will obtain reasonable assurance that the qualified custodian’s controls have been placed in operation as of a specific date, and are suitably designed and are operating effectively to meet control objectives related to custody of funds and securities during the period specified.
For more information on the rule and the examination, please click here.