PCAOB Issues Audit Guidance on Brokers and Dealers

Staff guidance released by the Public Company Accounting Oversight Board (PCAOB) on Thursday will assist auditors of brokers and dealers registered with the US Securities and Exchange Commission (SEC) plan and perform audits in accordance with PCAOB standards as mandated by the Dodd-Frank Act and SEC rules.

The guidance highlights relevant requirements for SEC-registered broker-dealer audits and attestation engagements, and provides direction on the application of PCAOB standards to these engagements, particularly for audits of smaller broker-dealers with less complex operations.

In addition, the publication points out some of the significant provisions of SEC Rule 17a-5 and PCAOB standards and rules applicable to audits of broker-dealers.

“To enhance investor protection, broker-dealer auditors must now meet PCAOB requirements,” PCAOB Chairman James Doty said in a written statement. “This guidance is tailored to help auditors of smaller broker-dealers develop a cost-effective, scaled approach to their audits.”

The Dodd-Frank Act amended the Sarbanes-Oxley Act to, among other things, give the PCAOB oversight authority for the audits of broker-dealers registered with the SEC.

In July 2013, the SEC amended Rule 17a-5 to require that audits of broker-dealers be conducted in accordance with PCAOB standards. In October of that year, the PCAOB adopted an auditing standard and two attestation standards that apply to broker-dealer audits. Those standards were approved by the SEC in February 2014.

The SEC amendments and PCAOB standards are effective for fiscal years ending on or after June 1, 2014. Prior to the effective date, those broker-dealer audits were performed under generally accepted auditing standards.

“Auditors of broker-dealers are now subject to new requirements, including the requirement to apply PCAOB standards. This publication discusses how audits can be scaled – based on the size and complexity of the broker-dealer – to apply PCAOB standards and fulfill their important role of helping to protect customers of broker-dealers,” PCAOB Chief Auditor Martin Baumann said in a written statement.

As of May 2013, there were 783 registered firms that issued audit reports on the fiscal year-end 2012 financial statements of broker-dealers that were filed with the SEC, PCAOB member Jeanette Franzel noted during a speech at the PCAOB Forum on Auditing Smaller Broker-Dealers in Chicago last month.

She said the SEC's financial responsibility rules for broker-dealers serve an important investor protection function by requiring brokers and dealers to maintain minimum levels of net capital and take steps to safeguard customer securities and cash.

“And the involvement of auditors – under PCAOB oversight and using PCAOB standards – should enhance the quality of information provided to the SEC for its regulatory oversight, which is important to the protection of investors who entrust broker-dealers with their cash and securities,” Franzel added.

She also mentioned during her May 28 speech that the PCAOB will continue to conduct inspections under its interim inspection program of registered public accounting firms that audit broker-dealers until rules for a permanent inspection program take effect. The board’s interim program began in late 2011 and will likely be extended as broker-dealers and their auditors transition to and implement the new rules and standards, Franzel added.

Related article:

PCAOB Adopts Broker-Dealer Attest and Audit Standards


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