PCAOB Issues Staff Inspection Brief Detailing Scope and Objectives of 2016 Inspections of Auditors of Broker-Dealers

The Public Company Accounting Oversight Board today issued a staff inspection brief detailing the scope, focus, and objectives of its ongoing 2016 inspections of auditors of brokers and dealers.

These 2016 inspections are focusing on audit areas and attestation procedures where inspectors previously found deficiencies, as well as auditor independence and engagement quality review. PCAOB inspectors also are reviewing the audit work for related party transactions to evaluate compliance with the newly updated Auditing Standard 2410 (currently AS 18).

"These staff inspection briefs may help audit firms, investors, and others better understand how our inspectors approach reviews of audits," said Helen Munter, PCAOB Director of Registration and Inspections.

Inspections staff are focusing on the following broker-dealer audit areas and attestation procedures in 2016:

  • Auditor independence
  • Financial statement areas with recurring deficiencies, including revenue, the assessment and response to risks of material misstatement due to fraud, financial statement presentation and disclosures, and fair value measurements
  • Audit procedures for related party transactions
  • Audit procedures on the supporting schedules to the financial statements
  • Procedures for the attestation engagements: the examination of compliance reports and the review of exemption reports
  • Engagement quality review

"These are areas that broker-dealer auditors should emphasize as they plan their audits," said Robert Maday, PCAOB Deputy Director of Registration and Inspections and Program Leader of the Broker-Dealer Audit Firm Inspection Program.

Under the interim inspection program established in 2011, the PCAOB inspects the firms that perform audits of broker-dealers registered with the Securities and Exchange Commission for compliance with professional standards, rules of the SEC and the PCAOB, and the Sarbanes-Oxley Act of 2002.

The Board is taking a careful and informed approach in establishing a permanent inspection program of auditors of broker-dealers. PCAOB staff is currently working toward a rule proposal for a permanent inspection program for the Board to consider in 2016.

During the 2016 inspection cycle, the PCAOB plans to inspect 75 firms that audit broker-dealers, covering portions of 115 audits and the related attestation engagements of these broker-dealers. That number includes five firms that audit more than 100 broker-dealers, 13 firms that audit 21 to 100 broker-dealers, and 57 firms that audit one to 20 broker-dealers.