Auditors of Broker- Dealers Repeat Mistakes, PCAOB Says

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By Laura Tieger Salisbury

Aug. 19 — Auditors of broker dealers are continuing to fail Public Company Accounting Oversight Board standards.

In a report, the PCAOB stated that the deficiencies “relate to the fundamentals of auditing” regardless of whether the auditor was using generally accepted auditing standards (GAAS) or PCAOB standards. The agency also noted that the audits have much the same problems—“deficiencies”—as in previous years.

The PCAOB Aug. 18 released the results of its 2015 report on the auditors of brokers and dealers. The inspectors found, as in previous years, that the auditors were still not in compliance with PCAOB's auditing and attestation standards (12 APPR 09, 5/6/16) (12 APPR 09, 5/6/16) (11 APPR 175, 2/13/15).

Problems in 96 Percent of Audit Firms

During 2015, the staff inspected portions of 115 audits and related attestation engagements at 75 firms.

An attestation standard is used when an accountant provides an opinion on the reasonableness of a particular assertion or set of assertions, other than financial statements (12 APPR 07, 4/8/16).

PCAOB inspectors found problems in the work of 96 percent of the audit firms inspected. Auditor independence deficiencies had decreased from 2014, impairments were found in 7 percent of the inspected audits, compared with 25 percent in 2014.

Auditors Not Independent of Clients

Robert Maday, deputy director of PCAOB Registration and Inspections and leader of the Broker-Dealer Audit Firm Inspection Program, said, “While there were fewer independence findings, it is very troubling that we continue to find auditors assisting in the preparation of the financial statements they audit or providing bookkeeping services to their audit clients. ”

Auditing revenue was a problem area with deficiencies found in 70 percent of audits, even though that was down two percentage points from 72 percent in 2014.

Inspectors reported problems:

  •  related to the Customer Protection Act, deficiencies increased from 43 percent of audits in 2014 to 53 percent in 2015;
  •  in the area of auditing fair value measurements, deficiencies remained at 44 percent, same number as in 2014;
  •  with required engagement quality reviews in 57 percent of audits, seven audits had no engagement quality reviews at all; and
  •  in 78 percent of the examinations of broker-dealers compliance reports and 34 percent of the broker-dealer exemption reports.

Experienced Firms: Least Deficiencies

The report stated that inspections staff had found a lower percentage of deficiencies among firms that performed audits for more than 100 brokers and dealers, compared to those that performed audits for 100 or fewer brokers and dealers.

Inspectors also found that audits of brokers and dealers that reported the highest amounts of actual net capital had lower percentages of deficiencies.

In the report, the board encouraged firms that audit brokers and dealers to review the Staff Guidance for Auditors of SEC-Registered Brokers and Dealers issued on June 26, 2014.

To contact the reporter on this story: Laura Tieger Salisbury in Washington at

To contact the editor responsible for this story: Ali Sartipzadeh at

For More Information

The PCAOB's reports of the Interim Inspection Programs of Audits of Broker- Dealers are available at

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