PCAOB Issues Annual Report on Inspections of Broker-Dealer Auditors

WASHINGTON, Aug. 18, 2016

The Public Company Accounting Oversight Board today issued an annual report on its interim inspection program for auditors of brokers and dealers.

The annual report describes results of inspections conducted in 2015, the first inspection year in which all inspected engagements were governed by the Securities and Exchange Commission's 2013 amendments to Exchange Act Rule 17a-5, including the new requirement that broker-dealer audits be performed in accordance with PCAOB standards. The report shows high levels of deficiencies similar to inspection results in previous years.

PCAOB inspectors identified deficiencies in the work of 96 percent of the audit firms inspected. Auditor independence appeared to be impaired in 7 percent of the inspected audits, compared to 25 percent in 2014.

"While there were fewer independence findings, it is very troubling that we continue to find auditors assisting in the preparation of the financial statements they audit or providing bookkeeping services to their audit clients," said Robert Maday, deputy director of PCAOB Registration and Inspections and leader of the Broker-Dealer Audit Firm Inspection Program.

"Auditor independence continues to be a focus of our inspections," he added.

The annual report, the fifth that the PCAOB has issued for the interim broker-dealer auditor inspection program, covers inspections of 75 firms and portions of 115 audits and the related attestation engagements.

PCAOB inspectors found deficiencies in 77 percent of the audits covered by the inspections during 2015, down from 87 percent in 2014.

Deficiencies in auditing revenue were identified in 70 percent of the audits, and deficiencies in auditing fair value measurements were identified in 44 percent of the audits where this audit area was reviewed.

The 2015 inspections also covered the auditors' examinations of broker-dealers' compliance reports and reviews of broker-dealers' exemption reports. PCAOB inspectors identified deficiencies in 78 percent of the examinations of compliance reports and in 34 percent of the reviews of exemption reports.

The identified deficiencies in audits, examinations, and reviews included deficiencies in the related engagement quality review (EQR) for 57 percent of the audits, 48 percent of the examinations, and 34 percent of the reviews. In seven instances, PCAOB inspectors found that the auditor had not obtained any EQR for either the audit or the related review, which is a new requirement.

The annual report also details inspection results since the inception of the interim inspection program for auditors of broker-dealers, which began in 2011.

PCAOB staff is currently working to develop, for the Board's consideration, a rule proposal to establish a permanent inspection program.

Read the full report, Annual Report on the Interim Inspection Program Related to Audits of Brokers and Dealers. A fact sheet on the annual report also is available.