Regulatory Compliance, Governance and Security

Jan 6 2010   1:29PM GMT

SEC Moves Forward with Surprise Audits in a Post Madoff World

Charles Denyer Charles Denyer Profile: Charles Denyer

Sure, this sounds like great news from the SEC in that it’s trying to build an image (that has been badly tarnished in recent years) that it does have teeth, can enforce rules, and has the public’s best interest at heart.

However, the problem is that under the new rules, only about 1,900 of the approximately 11,300 advisory firms registered with the SEC will be required to obtain surprise audits. Why? The SEC simply folded under intense pressure from various business groups, thus excluding a large number of advisory firms with a surprise audit (Which, by the way will more than likely be a SAS 70 Type II audit)

And if the asset threshold for SEC registration is raised to $100 million from $25 million, then the 1,900 advisory firms will become even smaller.

Nevertheless, the new audit rules “grow out of the Madoff Ponzi scheme and other frauds in which investor assets were misappropriated by investment advisers,” SEC Chairman Mary Schapiro said in a statement. “Such frauds have caused investors to question whether their assets are safe when they entrust them to an investment adviser. I believe today’s rules will help put their minds at ease.”

To learn more about SAS 70 audits, please visit the official SAS 70 Resource Guide.

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