PCAOB inspectors observe decrease in broker-dealer auditor independence impairments

By Ken Tysiac

PCAOB inspectors found fewer independence impairments for auditors of broker-dealers in 2015 compared with previous years. But they discovered deficiencies in financial statement audit areas that were similar to those observed in past years.

The PCAOB published a staff inspection brief Tuesday that previews the results of 2015 inspections of broker and dealer auditors, which will be covered in detail in a report that is expected to be issued in August.

The 2015 inspection cycle was the first in which audits of broker-dealers were required to be conducted in accordance with PCAOB standards. The PCAOB is reviewing broker-dealer audits under an interim inspection program that will continue until rules for a permanent program are established and take effect.

During 2015, the PCAOB inspected 75 firms covering 115 audit and attestation engagements for broker-dealers for fiscal years ending from June 1, 2014, through June 30, 2015.

Inspectors observed fewer independence impairments but continued to observe situations in which  auditors were involved in preparing their clients’ financial statements or accounting records.

Deficiencies in audit areas included audit procedures over revenue recognition, financial statement presentation and disclosures, and the risks of material misstatement due to fraud.

Inspectors also found:

  • Deficiencies related to the audit procedures required to be performed on the supporting schedules for the computations of net capital and the required reserve.
  • Deficiencies in the procedures performed for the now-required attestation engagements related to the compliance and exemption reports by broker-dealers.
  • Some firms did not have an engagement quality review performed for either the audit or the attestation engagement. In some cases, the engagement quality reviewer did not sufficiently evaluate the significant judgments and conclusions reached by the engagement team.

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


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