The requirements for broker dealer audits exist to protect investors from unregulated activity. Though broker dealers are expected to conduct their own internal investigations, external entities agencies are necessary for objectivity.
Once a year, investment advisory and venture capital firms that are registered with the Public Company Accounting Oversight Board (PCAOB) must audit their broker dealers. Broker dealers are subject to a wide range of regulations, from use of third-party services to related-party transactions. An annual audit ensures financial firms comply with all applicable regulations.
Independent Auditor Requirements
Your broker deal audits must be performed by an independent accounting firm that has certified auditors. This means the auditors can’t perform bookkeeping or other services relating to your financial statements or audit records. Their interests also must be separate from yours, so they won’t be harmed or benefited by the audit results. Additionally, independent auditors are required to comply with auditing and related professional practice standards.
Finding the Right Firm for Broker Dealer Audits
Accounting firms that have registered with the PCAOB meet the minimum requirements to conduct a broker dealer audit, and often offer audits for different areas, including nonprofits. To ensure a successful audit, choose an accounting firm that is registered with the PCAOB and has extensive experience navigating the complex securities industry. The firm should always have a finger on always-changing regulations. Otherwise, your audit will be a waste of time and might miss problematic areas.
Audits are a time-consuming process; however, they can be conducted with minimal disruption to your business operations. The right accounting firm will thoroughly examine your financial statements, consider your corporate goals, and provide tools to ensure compliance without negatively impacting your day-to-day routine. The more experienced the accounting firm, the smoother and less notifiable you’ll find the process.
Addressing Audit Concerns
If you raise any concerns during a broker dealer audit, the auditor will make recommendations for change. At the end of the process, at the very least you should have a plan to improve your compliance and fulfillment of regulations. Even if you think the auditor won’t find anything questionable, you could ask for suggestions. They’ll likely have a few recommendations for process improvements.
Preparing for Your First Broker Dealer Audit
When preparing for your first broker dealer audit, your firm should organize the materials that will be used during the audit ahead of time. They should collect answers to anticipated questions, as well as a list of questions for the auditors. Instead of viewing audits with dread, or as a bothersome occurrence, view it as an opportunity to strengthen your practices.