Is an audited balance sheet required if an adviser has custody or full discretion over client funds?

An audited balance sheet is indeed required when an adviser has custody or full discretion over client funds. This requirement is in place to protect investors and enhance transparency regarding the adviser’s financial situation and the safekeeping of client assets. The auditor's role is to provide an independent assessment of the adviser's financial statements, ensuring that the assets are accounted for properly and that there are no misstatements.

This requirement helps maintain a higher standard of accountability for advisers who handle client funds directly, as they can pose a higher risk of mismanagement or fraud. By mandating an audited balance sheet, regulatory bodies aim to reassure clients and regulators that the adviser is financially sound and operating within the law.

Other options may suggest scenarios where an audited balance sheet is not required or depends on specific conditions. However, the general rule is that an adviser with custody must provide an audited balance sheet to enhance trust and verification in their financial dealings with clients. This is a critical requirement aimed at safeguarding client interests and fostering integrity in financial advice.