The Board's proposed new standards are designed to address the SEC's proposed requirements that brokers and dealers file with their annual financial reports certain supporting schedules required by the current SEC Rule 17a-5 as well as one of two new reports — either a compliance report or an exemption report.
The SEC proposed its new requirements to amend SEC Rule 17a-5 on June 15, and the SEC's comment period is open until August 26. The public will thus be able to evaluate the SEC's proposed rule and the PCAOB's proposed standards at the same time.
Auditing Supplemental Information
Finally, the new proposed standard on auditing supplemental information would apply to audits of brokers, dealers and issuers, when the auditor is engaged to audit and report on supplemental information that accompanies the audited financial statements. For audits of brokers and dealers, this includes the supporting schedules in the financial report, that is, the schedule of the computation of net capital and the computation for determination of reserve requirements as required by SEC Rule 17a-5.
Under this proposed standard, the extent of testing of the supplemental information would be based on the extent of the risk of material misstatement of the information. Moreover, if the supplemental information were already tested as part of the audit of the financial statements, as would be the case in some situations, the proposed standard would not require additional testing.
I will be interested in the comments we receive on this proposal. I will be particularly interested in information about the risks presented in examinations and reviews of the SEC's new proposed compliance and exemption reports. I will also be interested in information about whether the proposed standards appropriately address those risks and would, in a meaningful way, provide greater assurance as to a broker-dealer's compliance with the SEC requirements. The intention is to promote meaningful protection of customer assets and not to cause wasteful effort.