For a full update on the latest PCAOB Hot Button Issues and developments, please attend our quarterly recap webinar. Our next webinar is scheduled for September 14 at 1:00 PM Eastern, and will focus on Root Cause Analysis
On August 18, the PCAOB released their Annual Report on the Interim Inspection Program Related to Audits of Brokers and Dealers.
The report covers inspections of 75 firms related to 115 audits and 114 attestation engagements.
Probably the most encouraging sign was that the number of Independence Findings went down from 25% of firms in 2014 to 8% in 2015. This is not that surprising in light of the emphasis that the SEC has placed on auditor independence. As Brian T. Croteau noted in his remarks before the 2015 AICPA National Conference on Current SEC and PCAOB Developments
Investor confidence in financial reporting is highly dependent on auditors’ commitment to maintaining independence in both fact and appearance. Auditor independence lies at the very foundation of the profession and is necessary to reduce threats to auditors’ objectivity and lend credibility to the fair presentation of the financial statements
On the downside –
- 89 of the 115 audits inspected (77%) had deficiencies
- 70% of the inspections revealed at least one deficiency related to revenue. As revenue standards continue to change, this is likely to be an ongoing concern.
- It is also of concern that 42% of inspections revealed a risk of material mistatement due to fraud,
| 2015 | 2014 | |||
| Audit and Other Deficiencies | Number of Audits with Deficiencies | Number of Applicable Audits | Percentage of Audits with Deficiencies | Percentage of Audits with Deficiencies |
| Audit Deficiencies Related to the Financial Statements | ||||
| Revenue | 80 | 115 | 70% | 72% |
| Financial Statement Presentation and Disclosures | 43 | 115 | 37% | 44% |
| Related Party Transactions | 27 | 85 | 32% | 21% |
| Risks of Material Misstatement Due to Fraud | 24 | 57 | 42% | 42% |
| Fair Value Measurements | 19 | 43 | 44% | 44% |
| Receivables and Payables | 14 | 67 | 21% | 19% |
| Audit Deficiencies Related to the Supporting Schedules | ||||
| Net Capital Rule | 34 | 115 | 30% | 39% |
| Customer Protection Rule | 16 | 30 | 53% | 43% |
| Other Deficiencies Related to the Audit | ||||
| Reporting on the Financial Statements and Supporting Schedules | 9 | 115 | 8% | 8% |
| Audit Documentation | 30 | 115 | 26% | N/A |
| Engagement Quality Review | 66 | 115 | 57% | N/A |
| Deficiencies in Audit Committee Communications | ||||
| Independence Communications to the Audit Committee (or equivalent) | 12 | 115 | 10% | N/A |
We encourage you to read the entire report, especially of you are in the broker/dealer industry. But even if you are not, this report could give you some insight into the types of issues that the PCAOB is looking into.
