Overseeing the SEC-registered broker-dealer auditors: why it's good for everyone

It’s interesting how people sometimes handle their money, by handing it over to a person or firm who may not handle it according to rules, which means the person handing it over has no idea if it’s being handled appropriately. Well-performed audits of Securities and Exchange Commission-registered broker-dealers helps to ensure the right things are done the right way. But who checks up on the auditors? The Public Company Accounting Oversight Board (PCAOB), that’s who, and what.

To get a better handle on the auditing of SEC-registered broker-dealers - and to deter skirting, violating, or half-stepping rules and law - the PCAOB has taken action. It issued a brief from its inspections staff titled “Information About 2015 Inspections of Auditors of Brokers and Dealers.” The PCAOB is a non-profit corporation set up by the U.S. Congress to “oversee the audits of public companies…The PCAOB also oversees audits of broker-dealers." Audits are indispensable to ensuring the proper operation of SEC-registered broker-dealers and to protect investors. At their best, audits make sure the rules are followed; show auditors how they can better do their job; remove bad actors from the stage; and see that clients aren’t victimized by the unscrupulous or the shoddy.

The introduction explaining the purpose of the PCAOB brief says,

“It is intended to assist auditors, audit committees, investors, and preparers in further understanding the inspection process and its results.”

Which means the following: if you’re an auditor or audit committee, here’s what you should be thinking about in terms of auditing and oversight if you’re not doing so already; brokers and dealers, if you’re falling down in your conduct or oversight, we want auditors to ferret out that information; if you’re an investor, we’re trying to help you better understand the process to keep you from dealing with brokers and dealers whose conduct and service to you fall short.

The five focus areas outlined in the brief are:

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

The PCAOB, which during the 2015 cycle says it plans to inspect 220 registered audit firms, will have its inspections staff look at three key areas: auditing internal control over financial reporting; assessing and responding to risks of material misstatement; and auditing accounting estimates, including fair value measurements. This leads to an important point: just as all attorneys, doctors, architects, and members of any other profession are not the same, neither are accountants, auditors, or broker-dealers. From a distance it may seem as if members of a profession all do the same thing, pretty much the same way. But that’s not how people are, and not how things work.

That’s why audits are necessary. That’s why the PCAOB is taking steps to boost audit quality. And that’s why this is important.

The PCAOB staff inspections brief can be read here.


Tagged Accounting, Featured, PCAOB, Broker-Dealers