PCAOB sees continuing problems in broker-dealer audits

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The Public Company Accounting Oversight Board has released its latest yearly report on its inspections of firms that audit broker-dealers and found deficiencies remain at a high level.

The 2018 Annual Report on the Broker-Dealer Interim Inspection Program, which the PCAOB posted on its website Tuesday, includes observations from inspections last year, when the PCAOB’s new slate of board members made some changes in inspections of auditing firms. Despite the changes, the PCAOB observed that the percentage of deficiencies for audit and attestation engagements stayed relatively high and continued improvement is needed.

“We believe significant positive impact on audit quality can be achieved if auditors focus on improving their systems of quality control, auditors advance their knowledge and understanding of PCAOB standards; and auditors focus on improving their performance in testing internal controls when employing controls-reliance audit strategies and for examination engagements,” said the report.

The percentage of audits with independence findings declined slightly last year, going from 8 percent in 2017 to 5 percent in 2018, but the percentage with audit deficiencies remained the same, at 76 percent. Similarly the percentage of areas with audit and other deficiencies remained the same: 32 percent in both 2017 and 2018. The percentage of examinations with attest and other deficiencies actually went up, going from 70 percent in 2017 to 75 percent in 2018. And the percentage of reviews with attestation and other deficiencies also got worse, going from 40 percent in 2017 to a 54 percent majority in 2018.

The report also includes the PCAOB inspectors’ main insights into the applicable auditing standards for broker-dealers, and examples of some effective procedures that auditors of broker-dealers should be using. Two appendices provide additional information about how the PCAOB selected the firms and engagements to examine and historical results from its inspections under the interim program. The PCAOB selected 67 firms for inspection last year. The inspections covered 105 audits of financial statements and 103 attestation engagements of brokers and dealers.

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