PCAOB Annual Report on Broker-Dealer Audits Shows Rising Deficiency Rates and Provides Recommended Actions for Firms

The PCAOB has released its “Annual Report on the Interim Inspection Program Related to Audits of Brokers and Dealers(PDF).” This year’s report finds that deficiency rates observed in 2022 inspections of broker-dealer engagements generally increased or remained elevated across engagement types and areas. Other key observations include the following:

• The PCAOB observed an increase in the percentage of firms inspected with deficiencies in quality control systems, including persistently high deficiencies associated with quality controls related to engagement performance, and more specifically, engagement quality reviews.

Good Practices and Recommended Actions for Audit Firms

In addition to inspection observations related to deficiencies, the report provides (1) “good practices,” which include brief scenarios and possible procedures that may be effective to address those scenarios, and (2) recommended actions for firms that may be effective to address deficiencies. Recommended actions for firms include the following:

• Enhance procedures to evaluate the presentation and disclosure of revenue.
• Enhance procedures to obtain an understanding of the broker-dealer financial responsibility rules and processes, including relevant controls, regarding compliance with the rules.
• Encourage all reviewers, such as managers, partners, and engagement quality reviewers, to perform their reviews with due professional care.

Accompanying the annual report is a separate publication, “Supplementary Information Related to Audits of Brokers and Dealers(PDF).” This supplement provides additional information about firms selected for inspection, as well as audit and attestation engagements for broker-dealers selected for review.

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About the PCAOB

The PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The PCAOB also oversees the audits of brokers and dealers registered with the Securities and Exchange Commission, including compliance reports filed pursuant to federal securities laws.