Almost nine in ten audits of broker-dealers examined in 2014 had deficiencies, according to the recent Public Company Accounting Oversight Board report, and almost a quarter had independence issues. With this in mind, the board plans to increase the number of firms inspected by 14 percent in 2015, and is working toward establishing a permanent inspection program.
Robert Maday, PCAOB program leader for Broker-Dealer Audit Firm Inspections urges broker dealer audit firms to re-examine their audit approaches due to ongoing issues identified during inspections.
Annual report results at December 2014 show that of 106 audits, 26 had independence findings; and there were audit deficiencies in all of the 66 firms inspected.
What are the key areas of concern?
Financial Statement Deficiencies: A deficiency, as defined by the PCAOB, means the audit firm hadn’t obtained enough evidence to support its approvals of a company’s financial statements and internal controls. Among types of deficiencies in statements related to controls are; a deficiency in design, a deficiency in operation, a significant deficiency, a material weakness leading to a reasonable possibility that a material misstatement is not detected.
Auditor independence: PCAOB Rule 3520 –
A registered public accounting firm and its associated persons must be independent of the firm’s audit client throughout the audit and professional engagement period. The rule safeguards auditors independence, objectivity and professional skepticism through mandatory rotation of audits. Additionally, the rule helps limit pressure on auditor’s to develop and protect long-term client relationships to the detriment of investors and capital markets.
Audit rules and the SEC exchange act rule 17a-5: Audit and attestation engagements of brokers and dealers are now required to be conducted in accordance with PCAOB standards relevant to Exchange Act Rule 17a-5 (“Rule 17a-5”) that became effective for broker and dealer annual reports with fiscal years ended on or after June 1, 2014. What does this mean? The SEC now requires broker-dealer audits be conducted in accordance with PCAOB standards, which require the auditor be independent of the CPA who prepares the financial statements and cannot be the same auditor who files the SEC audit report.
Looking forward to 2015 here is what we can expect from PCAOB inspections –
In an ongoing effort to identify focus areas for PCAOB inspections, the PCAOB released a staff inspection brief outlining the focus of 2015 PCAOB inspections:
- 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.
RND Resources, Inc. has a suite of services for broker-dealers. Whether you are starting a broker-dealer for the first time or have an existing firm that needs support, we are equipped with expertise.
Integrate business planning, compliance, operations, trading, and registration.
- Full Service Brokerage Support
- On-Site Audit Services
- Expert Regulatory Consulting
- Customized Compliance Programs
Contact us for details (818) 657-0288 or email.