PCAOB Broker-Dealer Update

Posted on 12.11.13

By Andrew K. Sledd, CPA, CFE | Manager

In August 2013, the Public Company Accounting Oversight Board (“PCAOB”) released its progress report on its inspections for auditors of broker-dealers for the period of March 2012 to December 2012. The PCAOB found deficiencies in almost 95% of the individual audits that were inspected. With the SEC amendments to the 17a-5 rules in July 2013 the PCAOB will be the new accounting oversight board for all audits of broker-dealers starting in June 2014. The deficiencies noted will need to be rectified for firms to comply with the PCAOB auditing standards going forward.

PCAOB member Jay Hanson discussed the results of the second inspection program in during a call with reporters in August. “The number of firms and audits inspected are greater than those we reported on last year, but the inspection results are similar and, in one word, disappointing,” said PCAOB member Jay Hanson during a conference call with reporters Monday. “We observed deficiencies in all of the firms inspected. Because a number of the firms inspected also audit issuers, some of the firms covered in this report are already subject to PCAOB inspections of issuer audits, which includes all of the large firms that we inspect annually in connection with our regular inspections of issuer audits, and 10 firms that we inspect once every three years. Of the firms inspected, 24 do not audit issuers, and, therefore, this is their first experience with a PCAOB inspection. The results point to a need for the firms we inspected to improve their performance, which will require focused effort and a desire to improve.”

The most common deficiencies noted stemmed from three areas: independence (preparation of financial statements for clients by the auditor), lack of audit procedures related to computations of net capital and customer reserve requirements, and lack of audit procedures related to financial statement areas including tests of revenues, related parities and risk of material misstatement due to fraud. The PCAOB website provides a more comprehensive report including a fact sheet of the deficiencies in its article, PCAOB Issues Second Progress Report on the Interim Inspection Program for Broker and Dealer Auditors.

We will continue to monitor information released from the PCAOB, SEC, FINRA, and other regulatory bodies as well as current industry practices for adopting the new rules and will continue to keep you informed of developments as they occur.

Please contact Keiter with any questions regarding the impact of the PCAOB regulations on your broker-dealer at 804.747.0000 | information@keitercpa.com.

The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.

Posted by: Andrew K. Sledd, CPA, CFE

​​Andrew specializes in auditing broker/dealers in securities, non-registered investment funds and registered investment advisers. He is a member of the Firm’s Financial Services Industry team and possesses a comprehensive understanding of SEC and FINRA rules and regulations. Read more of Andrew’s insights on our blog, www.keitercpa.com/blog.