Q: What is the purpose of an audit or examination?
A: An examination of a dealer or adviser’s books, records and operations is to ensure the dealer and its agents or investment
its representatives are in compliance with the Alabama Securities Act and the Commission Rules of the Alabama
Q: Are examinations or audits scheduled in advance?
A: Most examinations are unannounced or surprise. Some routine investment adviser examinations are provided a two day notification.
Q: When are examinations or audits conducted?
A: Examinations are conducted during the regular business hours of a registered broker dealer or investment adviser.
Q: Are branch offices subject to examinations or audits?
A: All offices of a broker dealer or investment adviser are subject to on-site examinations or audits, including branch offices.
Q: What does the on-site part of the audit consist of?
A: The audit generally consists of a review of the books and records that pertain to your advisory business, and a broker-dealer audit
consists of a review of certain books and records associated with that activity as well. Additionally, the audit will include an interview
of your principal
and perhaps interviews of selected other personnel at your firm. Also, if required records are commingled with other
records the examiners may review all commingled records.
Q: How long will the audit take?
A: The on-site portion of the audit will typically take 1 ½ to 2 business days but many times will run longer for a broker-dealer
or if there
are unforeseen complexities or logistical constraints placed on the audit staff.
Q: How do I prepare for the audit?
A: Please familiarize yourself with the portions of the Alabama Securities Act and the Rules of the Alabama Securities Commission
pertain to your practice. Also, review relevant alerts, bulletins, policy changes and updates located at the ASC website.
Q: How many ASC staff can I expect to come to my office?
A: Typically there will be two (2) audit staff members on site (one lead examiner and one associate). However, if there are
unforeseen complexities or logistical constraints placed on the audit staff there could be more or less than two (2)
auditors but this should not be interpreted as necessarily indicative of any
Q: Who should I use as my primary contact once the on-site audit has been completed?
A: The lead examiner is the staff member primarily responsible for the engagement and should be the first person to
contact if you have
a question, need clarification on an audit related
issue, or simply inquiring as to the status of the audit. The associate examiner can
be contacted if the primary examiner is unavailable.
Q: Can I provide electronic version of records in lieu of hardcopy?
A: Yes, an electronic version is an acceptable method of production. However, all required books and records, whether
hardcopy or electronically, must be immediately accessible to the examination staff.
Q: How can I verify the identity of an auditor from the Commission?
A: There are several methods of cross checking the identity of the examiners. You can call the ASC on the direct line at
(334) 242-2984 or
toll free at (800) 222-1253 and confirm identities
with the Audit Division Manager. You can also go to the agency directory and look for
the examiners by name. Finally, you can ask for ASC issued ID which consists of business card and photo badge. You may make a copy
of either for your records.
Q: What if an examiner cites a finding I don’t agree with?
A: You will be given an opportunity to respond when the post audit letter is issued.
Q: Can I have an attorney present during the audit?
A: Yes, but the presence of an attorney is typically not necessary and may involve significant costs to your firm in billable
Q: Can I have my outside compliance consultant present during the audit?
A: Yes, but the audit staff will be primarily concerned with how well you understand the compliance rules and regulations that
your firm, not your consultant’s expertise. To that end,
during the engagement continually deferring to the consultant for the answers
to the examiner’s queries would not be conducive to the Commission’s
goal of ascertaining your understanding of what is required.
Q: If I have a problem with an examiner who should I contact?
A: The Audit Division Manager at (334) 242-2984 would handle any complaints you may have with an ASC staff member.
Q: Can the audit staff provide names of firms they would recommend as vendors or service
providers for needs such as
client service management software, data backup, etc…?
A: The Commission staff is not authorized to offer recommendations of this nature since any recommendation made could be an implied
endorsement of a given entity which is not permissible.
Q: How often will Investment Advisory Firms be audited?
A: Routine audits of state registered investment advisers are typically conducted on a 2-3 year cycle. Firms maintaining
placed on an annual audit cycle, while for cause audits are conducted as often as necessary.
Q: Does a person who only solicits investment advisory clients for another registered
investment adviser have to be
registered as an investment adviser representative?
A: Yes, assuming they are compensated, a person who only solicits investment advisory clients for another registered
must be registered as an investment adviser representative of a registered investment advisory firm.
Q: Are investment advisers who only solicits for other advisors subject to audits?
A: Yes, on the same cycle as a traditional investment adviser.
Q: What is the difference between an Investment Advisory audit conducted by the ASC,
an independent audit conducted
by a CPA and a surprise audit which is
required because the adviser has custody?
A: An Investment Advisory audit conducted by the ASC is an examination of the adviser’s books, records and operations to
comply with the Alabama Securities Act, ASC rules and other
laws applicable to investment advisers. An independent CPA audit is an
of the financial statements of the adviser. A surprise audit mandated by ASC rules is an independent audit conducted by a CPA
ensure that client assets over which the adviser has custody do exist,
have not been misappropriated, and reconcile to those
assets reported to the client.