audit inspection

PCAOB Sheds Light on 2015 Broker-Dealer Audit Inspections

Sep 23rd 2015
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2015 is a hallmark year for the Public Company Accounting Oversight Board's (PCAOB) review of audits of brokers and dealers.

Broker-dealer audits this year will be done according to the US audit regulator's standards, not Generally Accepted Auditing Standards that governed previous audits. The PCAOB also recently issued the first in a series of staff inspection briefs that will go into far greater detail about the inspection process, including summaries of findings.

The PCAOB intends to inspect 75 firms that perform audits of broker-dealers and cover portions of 115 audit and attestation engagements – a 14 percent increase over 2014.

The interim inspection program was implemented in August 2011 in response to new oversight authority given to the PCAOB over auditors of US Securities and Exchange Commission (SEC)-registered brokers and dealers by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

While the ongoing interim inspection program has been in place about two years longer than first anticipated, according to the 2011 rule authorizing the program, the rule also indicates that the end of the interim period is near once PCAOB standards are in use.

“We have added these briefs to our outreach to auditors to inform them of areas of concern and inspection focus,” Helen Munter, director of the PCAOB Division of Registration and Inspections, said in a prepared statement. “Inspections staff believes that publicly discussing our areas of current inspections focus is important to understanding audit risks and encourages auditors to improve audit quality.”

This year's inspections target five areas:

1. Audit areas that had deficiencies in prior inspections, including revenue recognition and use of information produced or used by brokers or dealers. Basically, inspectors want to see progress. According to the brief, areas that have recurrent deficiencies include revenue recognition (inspectors will consider fraud risk assessment and the firm's handling of those risks, and how incomplete disclosures and presentation of revenue in financial statements are evaluated) and use of information used or produced by brokers or dealers (inspectors want to see how complete, accurate, and precise the information is).

2. Compliance and exemption reports under PCAOB standards. Inspectors will examine if there are internal controls over rules compliance and statements by the broker or dealer attesting to compliance with rules 15c3-1 and 15c3-3(e) as of fiscal year-end.

3. Audit procedures on financial statements' supplemental schedules. Inspectors are looking at auditors' materiality considerations, how the information accuracy and completeness are tested, and how auditors determine that the information complies with SEC rules.

4. The engagement quality review. Inspectors are looking at this process “as applied to financial statement audit and attestation engagements,” according to the brief.

5. Auditor independence. According to the brief, inspectors often see violations of independence requirements, such as audit firms handling bookkeeping or other accounting services that will be subject to audits.

Related article:

Deficiencies Continue to Plague Audits of Broker-Dealers


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