Accounting Watchdog Says Most Brokerage-Firm Audits Need to Improve 

Federal inspectors found deficiencies in more than three-quarters of the audits of broker-dealers they reviewed last year, down from the previous year but still at a high level, the government’s audit-industry regulator said Thursday.

The Public Company Accounting Oversight Board found deficiencies in 77% of the broker-dealer audits it inspected in 2015, compared with 87% in 2014, the board said in its annual report on its broker-dealer audit inspection program. Nearly all of the audit firms that conducted the broker-dealer audits—72 of 75—had deficiencies in one or more of their audits, the PCAOB said.

The PCAOB’s findings don’t mean that it has determined the broker-dealers themselves have operational deficiencies, just that the board believes the audits that assessed whether they might have a problem were flawed or insufficient.

Auditor independence in broker-dealer audits improved, however. The PCAOB found auditor independence—an auditor’s need to keep an arm’s length relationship from its client so as to preserve its impartiality—was impaired in 7% of the audits it inspected, down from 25% the previous year.

Among the most common deficiencies the PCAOB’s inspectors found were problems in auditing revenue, which the PCAOB identified in 70% of the audits it reviewed, and deficiencies in auditing fair value measures, in 44% of the audits where that area was inspected.

The PCAOB has consistently found high levels of deficiencies in its inspections of audits of broker-dealers, which the board has reviewed since 2011 under powers it was granted by the Dodd-Frank financial overhaul law. The board’s reports don’t identify the individual audit firms or the broker-dealers involved in the audits it inspects.

The PCAOB expects to issue a proposal for a permanent broker-dealer audit inspection program by the end of this year. The recent inspections have been done as part of an interim inspection program.

Source: WSJ

---