Broker-dealer audit concerns remain high for PCAOB

By Ken Tysiac

PCAOB inspectors found deficiencies in 77% of the audits of broker-dealers they reviewed in 2015, according to the annual report of the board’s interim inspection program for auditors of brokers and dealers, which was released Thursday.

That’s down from 87% in 2014, but remains characterized as a “high” level of deficiencies by the PCAOB. The report covered inspections of 75 firms and portions of 115 audits and related attestation engagements in 2015, the first year in which all engagements inspected were conducted under a new SEC requirement that broker-dealer audits be performed in accordance with PCAOB standards.

Auditor independence appeared to be impaired in 7% of the inspected audits, down from 25% in 2014. Deficiencies were found in the work of 96% of the audit firms inspected.

The most troublesome areas for auditors were auditing revenue, with deficiencies represented in 70% of the audits, and auditing fair value measurements, with deficiencies in 44% of the audits in which this audit area was reviewed.

Auditors’ examinations of broker-dealers’ compliance reports and reviews of broker-dealers’ exemption reports also were inspected in the 2015 review. Deficiencies were found in 78% of the examinations of compliance reports and 34% of the reviews of exemption reports.

Inspectors identified deficiencies in engagement quality review for 57% of the audits examined, 48% of the examinations, and 34% of the reviews.

The annual report describes results since the beginning of the interim inspection program for auditors of broker-dealers, which began in 2011. The PCAOB staff is developing a proposal to establish a permanent inspection program for the board to consider.

Ken Tysiac ( is a JofA editorial director.


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