PCAOB sees continuing problems with broker-dealer audits

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The Public Company Accounting Oversight Board released a report Friday calling attention to high deficiencies among auditors of brokers and dealers.

PCAOB inspectors found deficiencies at 97 percent of the auditing firms it inspected last year, compared to 96 percent in 2015. Inspectors identified deficiencies in 83 percent of the audits they inspected at those firms last year, up from 77 percent in 2015. PCAOB inspectors also saw deficiencies in 48 percent of the attestation engagements in 2016, compared to 55 percent in 2015.

“PCAOB inspectors continued to find high levels of deficiencies in the work of auditors of broker-dealers,” said PCAOB director of registration and inspections Helen Munter in a statement. “I hope auditors will use the information in this report to help plan and perform their audit and attestation engagements.”

Last year, the PCAOB inspected 75 firms that perform audits of broker-dealers, along with portions of 115 audits and related attestation engagements. This is the sixth year it has released a report on its inspections after it received the ability to inspect broker-dealer auditors as part of the Dodd-Frank Act of 2010. Since the interim inspection program began in 2011, the PCAOB has done 334 inspections of 264 firms that audit broker-dealers, looking at parts of 514 audits and 233 attestation engagements.

In the report, the PCAOB found issues with auditor independence at 10 percent of the firms it inspected last year, up from 7 percent in 2015. The independence findings were seen only at inspected firms that didn't audit public companies, however, the PCAOB noted, and they mainly related to preparing financial statements for the same client who was being audited.

PCAOB inspectors also found that an engagement quality review wasn't performed at all for eight of the audits and related review engagements it inspected. On top of that, the PCAOB inspectors saw deficiencies in the performance of the engagement quality review in 57 percent of the audits last year, 20 percent of the examination engagements, and 26 percent of the review engagements.

A fact sheet on the 2016 annual report is available here.

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