PCAOB Calling for Additional Care in Audits of Brokers/Dealers

On the Journal of Accountancy’s website,  Ken Tysiac writes that the PCAOB is urging auditors of broker/dealers to conduct audits with due professional care and skepticism after PCAOB inspectors identified deficiencies in 57 of the 60 audits of broker-dealers reviewed during the final 10 months of 2012.

The independent findings were identified in about 8% of the audits performed by firms that also audit public companies, but were found in about 80% of the audits performed by firms that audit brokers/dealers but not public companies.

Deficiencies were most commonly reported with respect to:

  • Audit procedures related to net capital and customer reserve supporting schedules, compliance with the conditions of the exemption claimed by the broker or dealer, and the accountant’s supplemental report on material inadequacies.
  • Audit procedures regarding tests of revenue, related parties, and the consideration of fraud in the audit of the financial statements.

The PCAOB urged firms that audit broker/dealers to read its report and take action to prevent deficiencies. Firms were encouraged to review:

  • Arrangements with broker/dealers, and quality-control procedures, for the purpose of upholding SEC independence rules.
  • Guidance and training to determine whether appropriate attention is being given to areas where PCAOB inspectors found deficiencies.
  • Policies for supervision and review to help ensure that firm partners and supervisors are paying sufficient attention to these areas.

Broker/dealer management and audit committees—or their equivalent—may want to inquire with their auditors about how audits are addressing these areas, the PCAOB suggested.

Auditors of broker/dealers, meanwhile, have a change coming with respect to the standards they follow. Beginning with audits effective for fiscal years ending on or after June 1, 2014, audits of broker/dealers will be conducted in accordance with PCAOB standards. Audits for fiscal years prior to that date have been conducted in accordance with GAAS.

This ends the information from the Journal of Accountancy.

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