The purpose of performing broker dealer audits and requiring regular reporting is to verify that broker dealers are compliant with regulations intended to protect investors. The broker should implement consistent internal investigations to assure this goal, but audits are the primary tool used by external agencies to verify these practices are in place. Similarly, external inspections are used to ensure that the auditors themselves are adhering to rules and regulations developed by the SEC and other regulatory boards.
Preparing for the Broker Dealer Audit Program
Assuming that company employees have followed the regulations, the key to preparation for an audit is to maintain accurate documentation. If it is not provided to you in advance, you can use the request list from previous audits, or request such a list from the auditors in advance of the audit. This will include up-to-date accounting information such as receivables, expenses, and company logs, among other items. An independent CPA will be able to advise you on what information to have available, and you can implement a regular internal inspection to monitor and verify the information between audits. It is also important to have a working understanding of SEC rules and accepted accounting procedures.Common Deficiencies in Broker Dealer Audits
Inspections of broker audits often reveal a similar list of deficiencies and inadequacies on the part of auditors. For example, internal audits should not be performed by your companyโs accounting firm. Other common problems include:- Improper auditing of revenue recognition
- Improper auditing of receivables and payables
- Improper evaluation of adequacy of financial statement disclosures
- Improper consideration of an entity’s going concern
- Insufficient inquiries and procedures related to compliance with exemption provisions