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PCAOB: Deficiency Rates in Audits of Broker-Dealers Remain High

S.J. Steinhardt
Published Date:
Aug 11, 2023

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The Public Company Accounting Oversight Board (PCAOB) continued to observe “unacceptably high” deficiency rates in audits of Securities and Exchange Commission (SEC)-registered broker-dealers in 2022, its Annual Report on the Interim Inspection Program Related to Audits of Brokers and Dealers found.

In its eighth year of inspections of firms that audit broker-dealers, the PCAOB stated that the deficiency rates it observed during 2022 inspections “generally increased or remained elevated across engagement types and areas,” results that are “a cause for significant concern.”

The key drivers of the high rate of deficiencies in audit engagements were related to "revenue and to net capital supplemental information, auditors’ reports, and audit documentation." The high rate of deficiencies in review engagements were related to "the auditor’s consideration of evidence that appeared to contradict statements (assertions) included in exemption reports, and to review reports."

The PCAOB also observed an increase in the percentage of firms inspected with deficiencies in quality control systems, "including persistently high deficiencies associated with quality controls related to engagement performance, and, more specifically, engagement quality reviews."

Not all of the findings were grim. "Audit engagements showed decreases in deficiencies related to customer protection supplemental information and going concern," the report found. Examination engagements showed a decrease in deficiencies related to testing internal control over compliance.

The report provided a list of "good practices" and "recommended actions" that auditors should follow. Its four recommended actions were:

• Enhance procedures to obtain an understanding of the broker-dealer financial responsibility rules and processes, including relevant controls, regarding compliance with the rules;

• Remind engagement teams and engagement quality reviewers of their obligation to perform their work with due professional care;

• Remind engagement teams and engagement quality reviewers of their obligation to perform their work with due professional care; and

• Enhance procedures to evaluate the presentation and disclosure of revenue.

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