PCAOB calls for improvement in audits of brokers and dealers

BY KEN TYSIAC
August 18, 2014

The PCAOB issued a report Monday calling on audit firms to improve the quality of their audits of brokers and dealers to comply with rules and standards.

As a result of findings from the PCAOB’s interim inspection program, the board urged firms that audit brokers and dealers to reexamine their audit approaches and take action to prevent deficiencies and independence issues.

The board is urging firms to consider ways to prevent deficiencies and to seek ways to better anticipate and address risks that might arise in specific broker and dealer audits. The PCAOB encouraged firms to constantly urge personnel to use due professional care and professional skepticism in audits, and encouraged firms to review:

  • Agreements for services performed for broker and dealer audit clients to make certain that they’re not providing services that violate SEC independence rules, such as preparation of financial statements.
  • Guidance and training to ensure that all professionals are aware of the SEC independence requirements that apply to audits of brokers and dealers.
  • Quality-control procedures to ensure compliance with applicable SEC auditor independence requirements, including prohibition of involvement in the preparation of financial statements that the firm audits.
  • Firm guidance and training to make certain that the topic areas of audit deficiencies identified in the PCAOB report are given appropriate attention.
  • Policies for supervision, including review, to ensure that audit partners and supervisory personnel are devoting attention to the areas identified in the report.


The guidance was delivered in the third annual report of the PCAOB interim inspection program for auditors of broker-dealers registered with the SEC. The SEC identified deficiencies in audits performed by 56 of the 60 audit firms inspected, and in 71 of the 90 (79%) audits inspected. That percentage is down slightly from the previous year, when deficiencies were found in 57 of 60 (95%) audits inspected.

Inspectors found audit deficiencies in portions of 70 of the 90 audits and identified independence findings in 21 of the 90 audits. One firm was found to have an independence violation but no audit deficiencies in the portions of the audits inspected.

More than half of the firms inspected (31 of 60) conducted between two and 20 audits of broker and dealers. Eleven of the firms inspected conducted just one broker-dealer audit.

The most common deficiencies found in the inspections were related to:

  • Auditing revenue recognition (59% of audits inspected).
  • Audit work performed for the auditor’s report on material inadequacies (49%).
  • Audit procedures to rely on records and reports (44%).


“We again urge firms that audit broker-dealers to reexamine their audit approaches, and we remind firms that independence rules applicable to broker-dealer audits prohibit bookkeeping or financial statement preparation by the auditor,” Robert Maday, deputy director of the PCAOB’s Division of Registration, said in a news release.

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA editorial director.

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