PCAOB Toughens BD Audit Standards

The requirements for BDs to prepare compliance or exemption reports, and for PCAOB-registered auditors to examine or review such reports, are new requirements included in the SEC’s recent amendments to Exchange Act Rule 17a-5. The compliance and exemption reports contain statements made by BDs regarding compliance with key SEC financial responsibility rules, including those involving the safekeeping of customer assets or with applicable conditions for exemption.

“Consistent with the requirements of Rule 17a-5, the attestation standards establish requirements for auditors examining certain statements in broker-dealer compliance reports and reviewing statements in broker-dealer exemption reports,” PCAOB said.

The supplemental information standard establishes the auditor’s responsibilities when engaged to perform audit procedures and report on supplemental information that accompanies the audited financial statements. Supplemental information includes the supporting schedules that broker-dealers are required to file with the SEC.

The Board initially proposed the attestation standards and auditing standard for supplemental information on July 12, 2011. The Board adopted these standards after consideration of comments received on the proposal and as a result of amendments made to Rule 17a-5 that were adopted by the SEC on July 30, 2013.

“Both attestation standards emphasize coordination between the examination or review engagement, the audit of the broker-dealer’s financial statements and audit procedures performed on the supplemental information,” said Martin F. Baumann, PCAOB Chief Auditor and Director of Professional Standards, in the same statement.

“This emphasis on coordination can promote overall audit effectiveness and avoid redundancy in the work performed.”