Broker Dealer Audit Deficiencies

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 ninth year in a row, the report indicates that the PCAOB continues to see a high level of broker dealer audit deficiencies in certain areas of engagement performance.

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 2020 PCAOB interim program inspection report, findings in broker audits were similar in nature to that of previous inspections. 71% of those selected had broker dealer audit deficiencies in one or more of the following areas:

• Examination deficiencies
• Review engagement deficiencies
• Financial statement preparation
• Inadequate auditing of:
  • Revenue
  • Financial statement presentation and disclosures
  • Consideration of going concern
  • Post-audit matters
  • Related party transactions
  • The Customer Protection Rule
  • The Net Capital Rule

Looking Forward

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 an issue. 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.