Audit scrutiny increases in wake of broker dealer failures

Aug 23, 2012
An initial review of brokerage firm audits by the PCAOB found failures in every audit inspectors reviewed.

“While the results of these initial inspections cannot be generalized to all securities broker and dealer audits and represent only a small portion of the inspections planned for the interim program, the nature and extent of the findings are of concern to the board,” said James R. Doty, PCAOB Chairman.
The report describes deficiencies observed in the following areas:
  • Audit procedures related to the computations of customer reserve and net capital requirements,
  • Audits of financial statements and
  • Auditor independence.
“The auditors were not properly fulfilling their responsibilities to provide an independent check on brokers’ and dealers’ financial reporting and compliance with SEC rules,” said board member Jeanette Franzel in a New York Times article.

Doty recommends all audit firms for SEC-registered brokers and dealers consider whether the audit deficiencies described in the report might be present in audits they currently perform.