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SEC Building

What Is an SEC Audit?

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The Securities and Exchange Commission (SEC) serves as the administer of federal securities laws in the U.S. Basically, SEC oversight ensures that securities markets operate in a just and systematic manner, that securities professionals are fair to their clients, and that all corporations make material information readily available so that investors have the proper information with which to make decisions. An SEC audit is a way for the SEC to ensure that firms comply with the rules and regulations it has set forth.

Regular audits are a routine event in the investment business. An SEC audit is considered to be almost inevitable for any investment adviser. SEC compliance should be a critical part of any firm’s day-to-day operations, as a negative audit can lead to such consequences as a deficiency letter, sanctions, consumer mistrust, or worse.

What to Expect in an SEC Audit

When the time comes for an SEC audit, it’s important to know what to expect so you can ensure that the process runs smoothly and you end up with a positive outcome. Usually, there will be certain information requested in an adviser audit that you will have to prepare. This might include:

  • lists of clients, including their type of account and asset value
  • lists of new accounts open or accounts terminated within a specific time frame
  • list of pricing and quotation services
  • copy of purchases and sales journals
  • a chronological list of trades and so on

Professional Assistance

There are many audit professionals available today who can help when your company is facing an SEC audit. They will make sure that financial statements are prepared in accordance with the SEC. A good audit assistance firm will begin to prepare documents before the audit in order to ensure that the audit and SEC filings are completed in a cost-efficient and timely manner.

Being Prepared

Since the SEC makes a point of regular auditing, it’s advisable to keep your business compliant with SEC regulations and standards. It’s also a good idea to regularly perform either an internal audit on your own or hire an outsourced internal audit firm or other audit professionals to do so for you. This will help identify any weaknesses in your system before an SEC audit inspection, allowing you to fix issues well before they become problems in an adviser audit.

The best strategy for an SEC audit is to focus on SEC compliance beforehand in order to avoid any extra cost in time or money to your company. Then the next time your firm is inspected by the SEC, you will be as prepared as you can be in order to ensure that the audit goes as smoothly as possible.

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