PCAOB Details 2017 Broker-Dealer Audit Inspection Areas

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Photo courtesy of the PCAOB
Terry Sheridan
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Audit areas and attestation procedures where deficiencies have been found in the past will be the focus of the Public Company Accounting Oversight Board’s (PCAOB) 2017 inspections of auditors of brokers and dealers.

According to a staff inspection brief issued by the audit regulator on June 29, PCAOB inspectors will review the following broker-dealer audit areas and procedures this year:

  • Auditor independence.
  • Financial statement audit areas where deficiencies were identified in past inspections, including revenue, the assessment and response to risks of material misstatement due to fraud, financial statement presentation and disclosure, fair value measurements, and related-party transactions.
  • Audit procedures on the supporting schedules to the financial statements.
  • Procedures for the attestation engagements: the examination of compliance reports and the review of exemption reports.
  • Engagement quality reviews.

Other inspection areas are selected specific to each engagement based on consideration of risk to customers of the broker or dealer, according to the PCAOB.

In addition to reviewing certain portions of selected audits and the related attestation work performed by firms, inspection procedures could include obtaining an understanding of how certain aspects of a firm’s quality-control system apply to its audit and attestation engagements of brokers and dealers.

“The intent of these staff inspection briefs is to help audit firms, investors, and others better understand how the PCAOB approaches audit firm inspections,” Helen Munter, director of registration and inspections at the PCAOB, said in a prepared statement.

During the 2017 inspection cycle, the PCAOB plans to inspect 75 firms that audit broker-dealers – the same amount as 2016 – and cover portions of 115 audits and the attestation engagements for these broker-dealers. That includes four firms that audit more than 100 broker-dealers, 16 firms that audit 21 to 100 broker-dealers, and 55 firms that audit one to 20 broker-dealers.

The PCAOB inspects firms that perform audits of broker-dealers registered with the US Securities and Exchange Commission (SEC). Inspections are intended to assess the firm’s audit and attestation engagements for compliance with professional standards, rules of the SEC and the PCAOB, and the Sarbanes-Oxley Act of 2002. 

Firms are selected for inspection based on various characteristics, including the number of broker-dealer audits performed and any significant increases, whether a firm also issued audit reports for issuers, observations from prior inspections, the experience of the firm and its personnel in auditing broker-dealers, and disciplinary actions against the firm or engagement partners by the SEC, PCAOB, or other regulators.

Some firms and audits also are selected randomly.

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