PCAOB Releases Staff Inspection Brief Offering a Preview of Observations from 2015 Inspections of Auditors of Broker-Dealers

WASHINGTON, Apr. 19, 2016

The staff of the Public Company Accounting Oversight Board today published an inspection brief that previews the results of 2015 inspections of broker and dealer auditors.

"This staff inspection brief offers an advance view of 2015 inspection results for auditors of broker-dealers," said Helen Munter, PCAOB Director of the Division of Registration and Inspections. "The 2015 inspection cycle was the first in which all audits of broker-dealers were required to be conducted in accordance with PCAOB standards."

PCAOB inspectors focused on and identified deficiencies in the following areas in 2015:

  • Auditor independence
  • Financial statement audit procedures
  • Audit procedures on the supplemental schedules to the financial statements
  • The examination of compliance reports and the review of exemption reports under newly applicable PCAOB standards
  • The engagement quality review

In 2015, PCAOB inspectors observed fewer independence impairments of auditors of broker-dealers than in prior years. Inspectors did, however, continue to observe situations where auditors were involved in the preparation of the financial statements or accounting records of their audit clients.

Inspections staff continued to observe deficiencies in financial statement audit areas similar in nature to the deficiencies observed in the past. These deficiencies related to audit procedures over revenue recognition, financial statement presentation and disclosures, and the risks of material misstatement due to fraud.

In addition, inspections staff observed deficiencies related to the audit procedures required to be performed on the supporting schedules for the computations of net capital and the required reserve.

Inspections staff also noted deficiencies in the procedures performed for the now required attestation engagements related to the compliance and exemption reports by broker-dealers.

Inspections staff found that some firms did not have an engagement quality review performed for either the audit or the attestation engagement and, in some cases, the engagement quality reviewer did not sufficiently evaluate the significant judgments and conclusions reached by the engagement team.

PCAOB staff inspected 75 firms during 2015, a 14 percent increase from 2014, covering 115 audit and attestation engagements. The selected audit and attestation engagements were for fiscal years that ended during the period from June 1, 2014, through June 30, 2015.

Observations from the inspections performed during 2015 will be covered in detail in the next "Annual Report on the Interim Inspection Program Related to the Audits of Brokers and Dealers," that is expected to be issued in August 2016.

The interim inspection program will continue until rules for a permanent program take effect. The Board is taking a careful and informed approach in establishing a permanent inspections program. PCAOB staff is currently working toward a rule proposal for the Board to consider later this year.