PCAOB Reports Deficiencies in Broker-Dealer Audits under PCAOB Standards

Washington, DC, Jan. 28, 2015

The first five inspections of broker-dealer audit and new attestation engagements subject to PCAOB standards show deficiencies in the auditors' application of these standards, the Public Company Accounting Oversight Board said today.

The requirement to follow PCAOB standards became effective for broker-dealer annual reports with fiscal years that ended on or after June 1, 2014, pursuant to an amendment to SEC Exchange Act Rule 17a-5. 

The PCAOB audit standards differ in certain respects from audit standards that previously applied. In addition, the new attestation standards distinguish between the requirements for carrying broker-dealers with custody of customer assets and those who are non-carrying and do not have such custody.

In a brief summary inspection report covering five broker-dealer audit and attestation engagements conducted by five auditors in 2014, the PCAOB described deficiencies, relative to the new requirements, observed in the five audits and four of the five related attestation engagements.

The PCAOB published the findings to remind auditors of the important changes to the requirements, particularly given the large number of auditors who will be applying the new requirements for the first time in engagements for broker-dealer clients with fiscal years that ended on December 31, 2014.

"This report alerts broker-dealer auditors — particularly those who are new to PCAOB oversight and applying Board standards -- to the findings to help auditors think about the application of the new standards. Also, we want to make sure auditors know that they can receive assistance from us in understanding what the standards require," said PCAOB Chairman James R. Doty.

Auditors who seek clarification of the standards may contact the PCAOB directly or review the PCAOB Staff Guidance for Auditors of SEC-Registered Brokers and Dealers published last June.

"Given these initial results, all auditors of broker-dealers should ensure that they understand the requirements of PCAOB standards, and that their audit approaches comply with these standards," said Robert Maday, PCAOB Inspections deputy director in charge of the interim broker-dealer audit firm inspection program.

The PCAOB focused its inspections on areas relevant to the amended SEC rules and aspects of the auditor's work that are unique to engagements subject to PCAOB standards, which included the examination of compliance statements and review of exemption statements.

During 2015, the Board plans to inspect approximately 75 firms and portions of approximately 115 audit and attestation engagements required to be conducted pursuant to PCAOB standards. The Board will issue future reports that will describe observations from the inspections.