PCAOB approves standards for auditors of broker-dealers

BY KEN TYSIAC
October 10, 2013

The PCAOB on Thursday approved new standards for auditors of brokers and dealers.

Two new attestation standards are designed to help protect customer funds by establishing rules for examinations and reviews of compliance information that broker-dealers submit to the SEC.

A new auditing standard applies to procedures performed and reporting on supplemental information that brokers and dealers file with the SEC. The board also adopted related amendments to other PCAOB standards.

The standards were enacted in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203, which authorized the PCAOB to oversee audits of brokers and dealers registered with the SEC. Previously, the generally accepted auditing standards of the AICPA Auditing Standards Board governed broker and dealer audits.

Rule amendments adopted by the SEC in July require that the following services be conducted by PCAOB-registered auditors in accordance with PCAOB standards:

  • Audits of broker-dealers’ financial statements.
  • Examinations of broker-dealers’ compliance reports, which are filed with the SEC to demonstrate that brokers and dealers who have custody of customer assets are obeying required investor protection safeguards.
  • Reviews of broker-dealers’ exemption reports, which are filed with the SEC when brokers and dealers do not have custody of customer assets.


The examination and review standards are intended to be scaled to the size and complexity of the broker’s or dealer’s business, PCAOB Chairman James Doty said in his opening statement at Thursday’s board meeting.

“The intent is to provide meaningful protection of customer assets and not to cause wasteful effort,” Doty said. “I believe the standards will do so.”

If approved by the SEC, the standards and amendments will take effect for services performed for fiscal years ending on or after June 1, 2014.

AICPA President and CEO Barry Melancon, CPA, CGMA, issued a statement saying the AICPA has been consistent in its position that brokers and dealers should be subject to SEC regulation, and that auditors of brokers and dealers that carry, clear, or have custody of customer funds should be subject to the PCAOB’s standards, inspections, and enforcement programs.

Melancon said it is critical that the PCAOB use risk analysis in determining which audits of broker-dealers should be included in a permanent inspection program that will be implemented by the board.

“We urge the board to act expeditiously in determining the scope of that program,” Melancon said.

The PCAOB currently is operating an interim inspection program. The interim program is designed to assess the compliance of registered firms and auditors with rules and standards, and to inform the board’s eventual decisions about the scope and elements of a permanent inspection program.

The PCAOB anticipates presenting a rule proposal for a permanent inspection program in 2014 or later, according to the most recent update on the interim program. The board will continue the interim program until the rules for the permanent program become effective.

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA senior editor.

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