IAA Submits Additional Comments on SEC’s Safeguarding Proposal

October 30, 2023

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The IAA has submitted a supplemental letter expanding upon and clarifying the significant concerns we raised in our initial letter about the SEC’s proposed rule relating to the safeguarding of advisory client assets. Our additional recommendations address our concerns with the audit provision under the safeguarding proposal in light of the SEC’s recently adopted private fund audit rule.

We make the following specific recommendations to improve the proposed audit provision:

• Allow qualified opinions in limited circumstances and provide an opportunity to cure a qualified financial statement opinion under the proposed audit provision and the private fund audit rule.
• Eliminate expensive and unnecessary liquidating audits in certain circumstances, such as where the value of the remaining assets is less than the cost of the audit.
• Permit sampling for asset verification – as is standard accounting practice today – rather than requiring verification of every asset and transaction.
• Retain the surprise examination approach as an alternative to the audit approach and permit a non-control adviser to take reasonable steps to cause an audit where the audit approach is elected rather than requiring that it in fact cause the audit.
• Clarify that a U.S. Generally Accepted Auditing Standards opinion is not required for certain non-U.S. entity financial statements.
• Do not require written agreements between advisers and auditors regarding audit-related notifications.

We also make the following recommendations to expand upon our initial letter:

• Preserve relief for loan syndicate account statements that some advisers rely on to meet their loan servicing obligations.
• Exclude all assets, whether cleared or uncleared, that are subject to CFTC jurisdiction.

The IAA is continuing to work constructively with the SEC to address the serious concerns we have raised with its safeguarding proposal.