Broker-Dealer Audits: Overcoming Costly Deficiencies in PCAOB Examinations and Avoiding Sanctions

Description

On Aug. 28, 2019, the PCAOB issued its Annual Report on the Interim Inspection Program Related to Audits of Brokers and Dealers. As in prior years, PCAOB noted material deficiencies that occur year after year in broker-dealer audits. In particular, the Board emphasized auditors should focus on improving their systems of quality control and gain a better understanding of PCAOB standards.

Audit deficiencies were found in the financial statements and supporting schedules, auditor independence, and in auditing internal controls. Of the 105 audit engagements examined, only 25 (24 percent) had no reported audit deficiencies.

PCAOB inspection findings included materiality thresholds that were too high, and that would not detect material misstatements, sample sizes that were too small, and engagement reviewers who lacked adequate experience. The PCAOB will continue scrutiny of financial statement areas with recurring deficiencies, including audit procedures for related-party transactions.

Broker-dealer auditors are responsible for reporting to the SEC on material inadequacies and ensuring compliance with net capital and customer funds segregation rules. The SEC requires broker-dealer auditors to register with the PCAOB and be inspected regularly. These supporting schedules must be audited under AS 2701.

Listen as our panel of broker-dealer audit experts offers practical guidance on what PCAOB inspectors are looking for and the underlying reasons certain areas are more heavily scrutinized. The program will discuss auditors' duties to maintain independence, assess risks of material misstatements due to fraud, and the use of confirmation technology to verify statements and arrangements.