The Public Company Accounting Oversight Board (PCAOB), in its annual report on the interim broker-dealer audit inspection program, said that there remains a high number of independence findings and deficiencies on a level similar to those discovered in prior years. According to a fact sheet, inspectors examined 66 audit firms and reviewed portions of 106 broker-dealer audits. They discovered deficiencies at each firm inspected, and in 92 of the 106 audits selected for inspection. Meanwhile, the board said there were 26 of 106 audits inspected with independence issues. 

Audit deficiencies were found most frequently, according to the PCAOB, in areas involving: 

• Revenue recognition
• Reliance on records and reports
• Fair value accounting estimates
• Financial statement presentation and disclosures
• Audit procedures related to the customer protection rule

Meanwhile, the most frequent independence issues included: 

• Involvement in the preparation of the financial statements in approximately 43 percent (18 of 42) of the audits selected for inspection that were performed by 39 firms that audited broker-dealers but did not audit issuers.
• Involvement in the preparation of the financial statements in approximately 6 percent (four of 64) of the audits selected for inspection that were performed by 27 firms that audited broker-dealers and also audited issuers.
• Engagement letters for four audits selected for inspection included clauses that would indemnify the auditor in the event the auditor incurred certain losses or liability in connection with the engagement.

"We have been urging firms that audit broker-dealers to re-examine their audit approaches due to ongoing issues identified during inspections," said Robert Maday, PCAOB Deputy Director of the Division of Registration and Inspections and Program Leader of the Broker-Dealer Audit Firm Inspection Program.