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You are here: Home / broker dealer audit / Broker Dealer Audit Deficiencies – No End in Sight

Broker Dealer Audit Deficiencies – No End in Sight

September 22, 2015 by EWA LLP

A problem that shows no signs of improvement is the high level of deficits in broker dealer audits. The PCAOB (Public Company Accounting Oversight Board) report that found inspections staff deficiencies at the 66 firms reviewed in 2014.

The State of Broker Dealer Audits

The examination conducted under the United States audit watchdog interim inspection program found that 87%, or 92 out of the 106 broker dealer audits reviewed had deficiencies. There were also concerns with 26 of 106 audits chosen, since they failed to fulfill auditor independence requirements.

According to PCAOB, they are most concerned about violations that relate to venerable US Securities and Exchange Commission (SEC), since they overstep independence rules concerning the preparation of financial statements.

The numbers are up slightly from 2013, where PCAOB found broker dealer audit deficiencies in 70 out of 90 (78%) of those inspected. The Independence findings in the same year found insufficiencies in 21 out of 90 audits.

Broker Dealer Audit Procedures

The Dodd-Frank Wall Street Reform and Consumer Protection Act gave PCAOB the authority to oversee any SEC registered broker dealer audits in August of 2011 when the interim inspection program was executed.

The audits covered in the current report include inspections completed during fiscal years that ended on or before May 31, 2014. All audits included in the fourth report issued PCAOB were required to follow the Generally Accepted Auditing Standards (GAAS). Additionally, broker dealer audits that occurred during fiscal years that ended on or after June 1, 2014 will be required to adhere to PCAOB standards.

Avoiding Broker Dealer Audit Deficiencies

The PCAOB recommends all organizations that manage broker dealer audits review their approach to audits, due to the continuing matters recognized in the course of inspections. This will help avoid deficiencies.

According to PCAOB, the most common broker dealer audit deficiencies occurred in the subsequent areas.
  • Audit processes associated with the customer protection rule (43%)
  • Financial statement management and disclosure (44%)
  • Fair value accounting estimations (44%)
  • Dependence on reports and records (57%)
  • Recognition of Revenue (72%)
If an auditing firm discovers an inaccuracy after the date of the audit report, it should do the following to stay in compliance.
  • Implement further audit procedures.
  • Inform your clients that change needs to be made to their financial statements, supportive schedules, or supplementary reports on material insufficiencies.
  • Make an effort to prevent dependence on audit opinions stated earlier.
Public accounting practices are asked to do the following.
  • Be preemptive in the prevention of related or other discrepancies by finding ways to anticipate and attend to risks that may emerge in detailed broker dealer audits.
  • Explain the significance to all staff that there is a vital need to conduct audits with due diligence and professional skepticism.
  • Have techniques in place for practice monitoring that contain the ability analyze the root cause of the deficiencies identified.
  • Ensure a system of quality control is in place that can offer practical reassurance of compliance with SEC’s independence requirements.

When in need of broker dealer audit services, you can rely on our Walnut Creek CPA firm to use our securities industry knowledge to keep your company in compliance.

Categories: Filed Under: broker dealer audit, broker dealer audit deficiencies, broker dealer audit procedures, broker dealer audits, Financial 101, walnut creek cpa firm Tags:

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