With the removal of the 15-client rule exemption from registrations with the SEC, many private funds are going to have to comply with SEC Rule 206(4)-2, the Custody Rule, under the Investment Advisers Act of 1940.  The SEC is trying to help, by maintaining its "Staff Responses to Questions About the Custody Rule." 

One area recently addressed by the SEC (on 9/9/10) was guidance on how surprise examinations should work:

Question IV.4.   Is there an example of a report that may be issued by the independent public accountant performing a surprise examination of the adviser?

Answer:  Yes. As stated within the Commission's Guidance for Accountants (Release IA 2969), the surprise examination is a compliance exam to be conducted in accordance with AICPA attestation standards.  The AICPA has issued an illustrative surprise examination report to reflect the reporting specified in the Guidance for Accountants.  The illustrative report is available on the AICPA's Web site.  Additionally, the AICPA published this illustrative surprise examination report in the May 2010 edition of the Audit and Accounting Guide — Investment Companies.

Question XIII.3.   Within the Guidance for Accountants contained in Release IA-2969, the SEC indicated that 2 types of reports issued under the AICPA professional standards (Type II SAS 70 or AT 601 compliance attestation) would satisfy the requirements of the internal control report.  Are there other report formats that can be used to satisfy the Custody Rule?

Answer:  Yes. The AICPA recently developed a report that under AT 101, Attest Engagements, of the AICPA's professional standards that would be acceptable under the Custody Rule.  An illustrative report is currently available on the AICPA's website.

For the complete set of Q&A's, click onto:   [ SEC Staff Responses: Custody Rule, 9/9 ]