The SEC has refused to allow private funds to engage audit firms subject to AICPA’s peer review program, instead of PCAOB inspection, to avoid the surprise examination requirement of the custody rule.  The custody rule (206(4)-2) requires a private fund auditor to be registered with, and subject to inspection by, the PCAOB so that the audited financial statements would preclude the annual surprise examination required by the rule.  In a letter to the SEC’s Division of Investment Management, AICPA argued that the AICPA peer review program should suffice and avoid the replacement of audit firms that cannot register with the PCAOB.  The SEC denied the requested relief.

OUR TAKE: Unless the PCAOB offers some relief during its rulemaking required by Dodd-Frank, many private funds will be forced to change auditors.

 http://www.sec.gov/divisions/investment/noaction/2010/aicpa122310.pdf