No-Action Relief Allows Private Funds to Retain Current Auditors
In a recent No-Action Letter, the staff of the SEC’s Division of Investment Management indicated that private funds need not fire their auditors simply because they are not subject to regular PCAOB inspection. The Advisers Act’s custody rule (206(4)-2(b)(4)) requires private funds to be audited by firms subject to regular inspection by the PCAOB because the fund sponsor/general partner has technical custody of fund assets. Currently, only auditors to public companies are subject to regular inspection. The No-Action Letter allows PCAOB-registered auditors to brokers-dealers to serve as auditors under the Rule if the adviser provides written notification to investors that the auditor is not subject to PCAOB inspection. The Dodd-Frank Act authorizes the PCAOB to ultimately implement inspection rules for such auditors.