PCAOB’s First Staff Inspection Brief Details Objectives and Scope of 2015 Interim Inspections Program for Auditors of Brokers and Dealers

Washington, Sep. 1, 2015

The Public Company Accounting Oversight Board recently published a staff inspection brief that details the objectives, focus, and scope of its ongoing inspections in 2015 of auditors of brokers and dealers, the first full year of these inspections in which all of the audits inspected were governed by PCAOB standards.

It is the first edition in a series of staff inspection briefs that will provide additional detail about the PCAOB inspection process, from scope documents to results and summaries of inspection findings.

Inspection brief.

"We have added these briefs to our outreach to auditors to inform them of areas of concern and inspection focus," said Helen Munter, PCAOB Director of the Division of Registration and Inspections. "Inspections staff believes that publicly discussing our areas of current inspections focus is important to understanding audit risks and encourages auditors to improve audit quality."

Inspection briefs may also be useful to broker-dealers, public companies, audit committees, and other audiences interested in audit quality.

The first brief outlines 2015 inspections conducted under the PCAOB interim program for auditors of broker-dealers.

"We have discussed our broker-dealer auditor inspections focus in the past in a variety of venues with many audit professionals," said Robert Maday, PCAOB Deputy Director of the Division of Registration and Inspections and Program Leader of the Broker-Dealer Audit Firm Inspection Program. "We think auditors of broker-dealers should know that we are focused on areas where we previously found deficiencies as well as other areas, like engagement quality review and auditor independence."

Under an interim inspection program established in 2011, the PCAOB conducts inspections of registered public accounting firms in connection with their audits of broker-dealers registered with the Securities and Exchange Commission to assess compliance with professional standards, rules of the SEC and the PCAOB, and the Sarbanes-Oxley Act of 2002.

Audit and attestation engagements of broker-dealers are required to be conducted in accordance with PCAOB standards as a result of amendments to SEC Exchange Act Rule 17a-5 that became effective for broker-dealer annual reports with fiscal years ended on or after June 1, 2014.

During the 2015 inspection cycle, the PCAOB plans to inspect 75 firms that audit broker-dealers covering portions of 115 audit and attestation engagements of broker-dealers. This represents a 14 percent increase from the number of firms inspected in 2014.

In 2015, inspections staff is evaluating how firms performed on audit and attestation engagements and focusing on:

  • The examination of compliance reports and the review of exemption reports under newly applicable PCAOB standards,
  • Financial statement audit areas that had deficiencies identified in past inspections, including revenue recognition and use of information produced or used by broker-dealers,
  • Audit procedures on the supplemental schedules to the financial statements,
  • The engagement quality review, and
  • Auditor independence.

The Board is taking a careful and informed approach in establishing a permanent inspection program of auditors of broker-dealers. PCAOB staff is currently working toward a rule proposal for a permanent inspection program for the Board to consider in 2016.

The PCAOB also recently issued the annual report for the 2014 cycle of the interim broker-dealer auditor inspection program.