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Industry Spotlight > Broker Dealers

PCAOB Releases Preview of BD Audit Inspection Results

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Broker-dealers continue to show deficiencies in financial statement audit areas similar to previous inspection cycles, including revenue recognition, financial statement presentation and disclosures, and the assessment of risks of material misstatement due to fraud, according to a just-released Public Company Accounting Oversight Board report.

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.

PCAOB staff inspected 75 firms in 2016 covering 115 audit and attestation engagements. The selected audit and attestation engagements were for fiscal years that ended during the period from June 30, 2015, through June 30, 2016.

Helen Munter, director of PCAOB’s registration and inspections, said in a statement releasing the report that the “preview of 2016 inspection results may benefit auditors of broker-dealers as they plan and perform future audits.”

Inspections staff stated that they continued to observe instances in which “independence appeared to be impaired because the auditors were involved in the preparation of the financial statements or performed bookkeeping or other prohibited services related to the accounting records of their broker and dealer clients.”

Auditors must be independent of their audit clients throughout the audit and professional engagement period, PCAOB stated.

“An auditor is not independent of its client, including its broker or dealer client, if the auditor maintains or prepares the client’s accounting records, prepares the client’s financial statements that are filed with the SEC, or prepares or originates source data underlying the client’s financial statements.”

The report states that PCAOB and the SEC have issued settled orders imposing disciplinary sanctions against audit firms for independence violations when auditing brokers and dealers.

PCAOB inspectors also observed that auditors did not sufficiently assess relationships and transactions with related parties.

In 2016, PCAOB inspectors also observed deficiencies in areas including audit procedures on the supporting schedules that accompanied the financial statements; procedures for the attestation engagements: the examinations of compliance reports and the reviews of exemption reports; and engagement quality reviews.

Observations from the inspections performed in 2016 will be detailed in the next Annual Report on the Interim Inspection Program Related to the Audits of Brokers and Dealers, to be issued in August.

— Check out SEC Approves 2017 Budget Boost for PCAOB on ThinkAdvisor.


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