U.S. accounting oversight authorities said they are concerned about the quality of auditing that broker-dealers receive, after their reviews to date have discovered deficiencies in every audit.
The U.S. Public Company Accounting Oversight Board (PCAOB) Monday released its first report on the progress of its inspection program for auditors of brokers and dealers. PCAOB inspectors reviewed 10 audit firms covering portions of 23 audits of brokers and dealers registered with the US Securities and Exchange Commission (SEC) between October 2011 and February 2012, and identified deficiencies in all of the audits the examined.
The report says that the PCAOB found deficiencies in several areas, including: audit procedures related to the computations of customer reserve and net capital requirements, audits of financial statements, and auditor independence.
It also notes that the audits and firms selected are not representative of all broker and dealer audits, or all auditors for SEC-registered brokers and dealers. Ultimately, the PCAOB expects to review approximately 100 audit firms covering portions of more than 170 audits of brokers and dealers through 2013.
“While the results of these initial inspections cannot be generalized to all securities broker and dealer audits and represent only a small portion of the inspections planned for the interim program, the nature and extent of the findings are of concern to the board,” said PCAOB chairman, James Doty.
“All registered firms that issue audit reports for SEC-registered brokers and dealers should consider whether the audit deficiencies described in this report might be present in audits they currently perform, and should take appropriate action to prevent or correct any such deficiencies identified,” Doty added.
The auditor inspection program was implemented a year ago in response to new oversight authority given to the PCAOB over auditors of brokers and dealers registered with the SEC by the US regulatory reform legislation known as Dodd-Frank. It aims to assess the compliance of registered firms conducting audits of brokers and dealers with the Sarbanes-Oxley Act, PCAOB and SEC rules, and professional standards; and it will inform plans for a permanent inspection program.