PCAOB Report on Broker-Dealer Audits Shows High Deficiency Rates and Provides Good Practices and Reminders 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 notes that PCAOB staff identified at least one deficiency in 70% of the 103 audit engagements on broker-dealer financial reports reviewed during 2023.

In addition to descriptions of deficiencies, the report provides firms with examples of good practices and reminders of certain PCAOB requirements. These good practices and reminders are focused on topics where deficiencies are persistently high or increasing, and they include following:

• Auditing considerations regarding use of a service auditor’s SOC 1 report to obtain evidence of the design and operating effectiveness of certain controls at a service organization;
• Testing relevant assertions for investment advisory fee revenue;
• Enhancing procedures for examining journal entries and other adjustments for evidence of possible material misstatement due to fraud; and
• Enhancing focus on required communications to the broker-dealer’s audit committee (or equivalent) and management.

A separate publication – “Supplementary Information Related to Audits of Brokers and Dealers(PDF)” – accompanies the annual report. This supplement provides additional information about firms selected for inspection, audit and attestation engagements for broker-dealers selected for review, and inspection results stratified based on a variety of characteristics.

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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.