PCAOB seeing quite a few issues in broker-dealer audits

The Public Firm Accounting Oversight Board reported Friday it uncovered a excessive charge of deficiencies final 12 months in companies that carry out audits of broker-dealers just like 2020, however there have been indicators of enchancment when it comes to audit engagements and high quality management programs.

The proportion of inspected companies the place the PCAOB recognized a number of audit and/or attestation engagement deficiencies remained excessive at 78% in 2021, which was according to 2020, in accordance with the report. Nonetheless, the proportion of audit engagements reviewed the place the PCAOB recognized deficiencies fell to 49% in 2021, from 61% in 2020, however remained excessive, primarily as a consequence of deficiencies related to auditing income amid the pandemic. 

The PCAOB has beefed up its inspections of audit companies that cater to broker-dealer shoppers because the monetary disaster of 2008-2009 and now points annual experiences to forestall conditions just like the small agency utilized by the late Bernard Madoff that carried out few precise audits. Beneath the Dodd-Frank Act of 2010, it was licensed to determine an inspection program for auditors of broker-dealers and started these inspections in 2011.

The proportion of companies inspected the place the PCAOB recognized deficiencies in high quality management programs declined to 48% in 2021, from 66% in 2020, with nearly all of deficiencies in each years referring to engagement high quality evaluations. 

The PCAOB inspections discovered that companies that audited 100 or fewer broker-dealers had increased percentages of audit engagements with recognized deficiencies, in comparison with the outcomes for companies that audited greater than 100 broker-dealers. 

“For companies that audited 100 or fewer broker-dealers, the proportion of audit engagements with recognized deficiencies declined to 60% from 71% in 2020 and 84% in 2019,” mentioned the report. “For companies that audited greater than 100 broker-dealers, the proportion of audit engagements with recognized deficiencies declined to 32% in 2021 from 38% in 2020 and 41% in 2019. The proportion of examination engagements lined the place we recognized a number of deficiencies declined barely, to 64% of engagements in 2021 from 67% in 2020, however remained excessive, primarily as a consequence of deficiencies in testing inside management over compliance.”

The proportion of evaluation engagements the place the PCAOB recognized a number of deficiencies elevated to 28% in 2021 from 23% in 2020. 

Together with the annual report, the PCAOB additionally launched a separate complement containing data associated to audits of brokers and sellers. The doc supplies details about companies chosen for inspection, together with audit and attestation engagements for broker-dealers chosen for evaluation, in 2021 and prior years. The PCAOB additionally offered supplementary details about the outcomes of its inspections stratified by completely different agency, inspection and broker-dealer traits.