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Industry Spotlight > Broker Dealers

BD Audits Failing to Meet New Standards

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The Public Company Accounting Oversight Board said Wednesday that its first five inspections of broker-dealer audit and new attestation engagements subject to PCAOB standards show deficiencies in the auditors’ application of these standards.

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 Securities and Exchange Commission.

The requirement to follow PCAOB standards became effective for broker-dealer annual reports with fiscal years that ended on or after June 1, 2014.

The PCAOB audit standards differ in certain respects from audit standards that previously applied. In addition, PCAOB says that the new attestation standards distinguish between the requirements for carrying broker-dealers with custody of customer assets and those who are non-carrying and do not have such custody.

PCAOB released Wednesday a summary inspection report covering five broker-dealer audit and attestation engagements conducted by five auditors in 2014, which describes deficiencies, relative to the new requirements, observed in the five audits and four of the five related attestation engagements.

“This report alerts broker-dealer auditors — particularly those who are new to PCAOB oversight and applying Board standards — to the findings to help auditors think about the application of the new standards,” said PCAOB Chairman James R. Doty, in a statement. “Also, we want to make sure auditors know that they can receive assistance from us in understanding what the standards require.”

The inspection report findings are designed to remind auditors of the “important changes to the requirements, particularly given the large number of auditors who will be applying the new requirements for the first time in engagements for broker-dealer clients” with fiscal years that ended on Dec. 31, PCAOB said.

“Given these initial results, all auditors of broker-dealers should ensure that they understand the requirements of PCAOB standards, and that their audit approaches comply with these standards,” added Robert Maday, PCAOB Inspections deputy director in charge of the interim broker-dealer audit firm inspection program, in the statement.

PCAOB said that it focused inspections on areas relevant to the amended SEC rules and aspects of the auditor’s work that are unique to engagements subject to PCAOB standards, which included the examination of compliance statements and review of exemption statements.

This year, PCAOB plans to inspect approximately 75 firms and portions of approximately 115 audit and attestation engagements required to be conducted pursuant to PCAOB standards. Future reports will be released to describe observations from those inspections, PCAOB said.

PCAOB issued an audit guide last July to help BD auditors meet PCAOB standards.


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