The Public Company Accounting Oversight Board (the “PCAOB”) recently released its annual report of findings in audits of broker dealers under its interim inspection program. For the fourth year in a row, the report indicates that the PCAOB continues to see a high level of broker dealer audit deficiencies.
Importance of Oversight
The PCAOB’s main purpose is to oversee audits of public companies and thereby protect investors and their interests. It performs the essential task of furthering the public interest by ensuring that audit reports are conducted independently, prepared correctly, and contain accurate information. In 2010, the PCAOB began to oversee audits of broker dealers to further this purpose.
Findings in Broker Dealer Audits
In the August 2015 PCAOB interim program inspection report, findings in broker audits were similar in nature to that of previous inspections. 87% of those selected had broker dealer audit deficiencies in one or more of the following areas:
- Satisfying independence requirements
- Responding to fraud risk
- Over reliance third party records and reports
- Inadequate auditing of:
- Related party transactions
- Revenue recognition
- Fair value estimates
- The Customer Protection Rule
The PCAOB released a brief to assist firms on focus areas for the 2015 inspections. In addition to that listed above, the PCAOB will focus on the examination of compliance reports, the review of exemption reports, engagement quality review, and procedures on supplemental schedules.
How to prepare for your audit
While this information is specific to auditors of broker dealers, broker dealer firms need to make sure to have an accurate and reliable audit to maintain compliance with the regulations. To make the audit a smooth process, broker dealer firms should be aware of these focus areas, maintain adequate supporting documentation, and understand generally accepted accounting principles (GAAP) and SEC rules.
Auditor assistance with financial statement preparation continues to be the main reason for the violation of independence requirements that was noted above. We understand that small broker dealer firms may not have the same accounting resources as large firms and need assistance to prepare accurate financial statements and disclosures. If we are not your auditor, we are happy to provide financial statement preparation services for your firm’s outside auditors.
Whether you need us for auditing services or financial statement preparation services, we have the extensive industry experience you need, the professionalism you expect, and the integrity you trust. Contact us to learn how we can help you with your broker dealer audit.