PCAOB broker-dealer audit inspection results highlight the importance of selecting a qualified auditor
While some independent auditors may advertise low fees to entice broker-dealer clients for their annual audits, broker-dealers should be wary of going with the lowest bidder, as significant additional costs can be incurred if the low-cost auditor is deemed to have performed an inadequate audit. Based on the quality of the audit work performed by the auditor, broker-dealer clients could get stuck with the tab, both financially and in time and effort by broker-dealer staff, for additional audit procedures not performed by the low-cost auditor. If the audit is deemed to be inadequate, the broker-dealer may be required to restate and reissue their annual financial reports.
Every year the Public Company Accounting Oversight Board (the “PCAOB” or the “Board”), which is charged with oversight of auditors of public companies, including all broker-dealers registered with the SEC, performs sample inspections of broker-dealer audits. In July 2024, the PCOAB released its findings for 2023 inspections.
The inspection results revealed that many broker-dealer audits contained deficiencies. Deficiencies were observed in 70% of the 103 audits inspected. As always, the Board inspections focused on specific areas of the audits that have been deemed to be more risky.
PCAOB broker-dealer audit inspection focus areas
Areas reviewed closely by the Board inspectors included:
- Auditor independence
- Identifying and assessing risks of material misstatement
- Consideration of fraud in a financial statement audit
- Revenue testing
- Related party relationships and transactions
- Journal entries
- Consideration of an entity’s ability to continue as a going concern
- Financial statement preparation and disclosure
Although the individual auditor’s results of the Board’s inspections are not made public, there may be circumstances where an audit deficiency discovered during an inspection could lead to the broker-dealer having to re-issue amended financial statements. That is, if the inspected auditor concludes that a required auditing procedure was omitted from the audit of the financial statements and that such omission impairs the auditor’s ability to stand by its previously issued audit report on the broker-dealer’s financial statements, the auditor must promptly perform the omitted audit procedure.
If, after the performance of the omitted audit procedure, the auditor discovers the previously issued and submitted financial statements were materially misstated, the auditor may require the broker-dealer to restate and reissue the financial statements once the complete audit procedures are performed. This will result in significant additional fees and expenses not originally contemplated by the broker-dealer in order to correct their financial statements.
Selecting a qualified broker-dealer auditor
In order to avoid possible restatement and reissuance of annual financial statements, broker-dealers should ensure their independent accountant has expertise in the complexities of the broker-dealer regulations and has a history of clean PCAOB inspection reports.
Broker-dealers can view the public portion of their auditor’s most recent inspection report here.
Concerned about the quality of your broker-dealer audit? Our broker-dealer audit specialists can provide the experience and insights you need for an audit that meets your industry’s unique requirements. Contact us: Email | 804.747.0000
