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Industry Spotlight > Broker Dealers

Deficiencies Found at 97% of BD Audit Firms

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Broker-dealer auditors continue to show “high levels” of deficiencies, with Public Company Accounting Oversight Board inspectors citing deficiencies at 97% of the firms inspected in 2016, a slight rise from the 96% in 2015, according to PCAOB’s just-released annual 2016 review.

The annual report, the sixth issued by the PCAOB for its interim inspection program for auditors of broker-dealers, covers the 2016 inspections of 75 firms and portions of 115 audits and related attestation engagements.

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.

Deficiencies were observed in the audits at 73 of the 75 firms inspected during 2016, or 97%, the report said, which was comparable to the 96% observed from inspections during 2015. In addition, deficiencies were observed in 96 of the 115 audits covered by the 2016 inspections, or 83%, up from 77% in 2015.

PCAOB inspectors identified deficiencies during 2016 in:

  • Auditing revenue in 66% of the audits, down from 70% in 2015;
  • Auditing risks of material misstatement due to fraud in 57% of the audits, up from 42% in 2015;
  • Auditing related party transactions in 33% of the audits, which was comparable to the 32% in 2015;
  • Auditing fair value measurements in 24% of the audits, down from 44% in 2015;
  • Auditing supplemental information related to the Securities and Exchange Commission’s Customer Protection Rule in 52% of the audits, which was comparable to the 53% in 2015; and
  • Performing the required engagement quality review in 57% of the audits, which was the same as in 2015, including in 2016 eight audits in which no engagement quality review was performed, compared to seven audits in 2015.

“PCAOB inspectors continue to find high levels of deficiencies in the work of auditors of broker-dealers,” said Helen Munter, director of registration and inspections. “I hope auditors use the information in this report to help plan and perform their audit and attestation engagements.”

Since the start of the interim inspection program in the fourth quarter of 2011 through Dec. 31, 2016, the PCAOB has performed 334 inspections of 264 firms that conducted audits of broker-dealers. These inspections covered portions of 514 audit engagements and 233 attestation engagements. Over that time, PCAOB inspectors have observed lower percentages of deficiencies among firms that also audit issuers or performed audits for more than 100 broker-dealers.

— Check out PCAOB Releases Preview of BD Audit Inspection Results on ThinkAdvisor.


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