Don’t let your RIA audit sneak up on you. While it might not actually be time for your RIA surprise audit, if you’re a Registered Investment Advisor (RIA), now is as good a time as any to prepare.

Here’s what an RIA audit looks like and how to prepare for it at any moment.


What is an RIA Audit?

Under the Investment Advisers Act of 1940, more specifically SEC Rule 206(4)-2, registered investment advisors who hold custody of client funds and securities are subject to a yearly surprise examination by an independent public accounting firm registered with the Public Company Accounting Oversight Board (PCAOB).

Because RIAs manage the assets of individuals and businesses, conducting an RIA audit is necessary to detect fraud, ensure regulatory compliance, and maintain reporting with the SEC. 


How to Prepare for Your Surprise Audit Examination

Unfortunately, if you’re an RIA, you’ll have no notice of when your custody rule audit is due– that’s why they’re often called “surprise audits.” However, you can choose which public accounting firm conducts your audit, so choose an accounting firm with experience in your industry. 

There are several things to prepare for your anticipated RIA audit. Here’s what you can do: 

  • Create a schedule to review client and custodian contracts regularly.
  • Consult with a trusted legal advisor if you have any complex custody questions, especially if you’re unsure if your RIA firm holds custody or not.
  • Maintain an accurate list of client accounts subject to a surprise examination.
  • Ensure all contracts and supporting documents are up-to-date and accessible. 
  • Maintain, update, and document your internal controls and systems.
  • Conduct position and transaction reconciliations on schedule.

Because your surprise examination can happen anytime, consider using these suggestions to create an RIA audit task list and incorporate it into your workflow. That way, when your auditor calls to schedule your audit, you’ll be fully prepared.


What to Expect During an RIA Custody Audit

Understanding the audit process is essential for your participation in the surprise audit.

During an RIA custody audit, your auditor will:

  • Carefully review your client accounts and their holdings.
  • Review your books and records of your RIA’s custody, verify the accuracy of the information, and reconcile the provided records.
  • Review transactions to ensure compliance with the SEC’s Recordkeeping Rule. 
  • Ask you to provide other pertinent information regarding selected clients and their accounts.
  • Ask you to verify and sign the Management Representation Letter, a required SEC document.
  • File the audit report and supporting documents with the SEC.

Your CPA auditor must submit their findings in Form ADV to the SEC within 120 days of the audit. 


Choose Assurance Dimensions for Your Next Audit 

Although surprise audits are an annual requirement to ensure compliance with the SEC, they also provide valuable insights to potential clients. Potential clients will want to ensure your RIA firm understands how to manage and invest client funds appropriately, and supplying them with a completed copy of your custody rule audit helps prove your firm is responsible.

It’s critical you choose an experienced independent public accounting firm as a partner for your suprise audits. At Assurance Dimensions, we have over 75 years of industry experience, allowing us to personalize your auditing needs. And, with our remote-friendly and secure audits, you can trust your surprise examination will be efficient and successful. Contact us today to learn more.