Industry Insights

Broker-Dealer Audit Quality

September 2016
Author:  Anne Coughlan

Anne Coughlan



201 N. Illinois Street, Suite 700
P.O. Box 44998
Indianapolis, IN 46244-0998 (46204)


The Public Company Accounting Oversight Board (PCAOB) recently released findings from its 2015 broker-dealer inspection program that covered 115 audits and 75 related attestation engagements. While there was improvement from prior years, several areas still warrant attention. BKD supports the inspection program and monitors and analyzes PCAOB’s reports and the application to our practice to fulfill our commitment to audit quality.


The Sarbanes-Oxley Act of 2002 (SOX) created the PCAOB and made auditors of U.S. public companies subject to external, independent oversight. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act amended SOX to give the PCAOB oversight of the audits of broker-dealers registered with the U.S. Securities and Exchange Commission. In 2011, the PCAOB began inspecting registered firms’ audits of brokers and dealers. PCAOB inspections assess compliance with certain laws, rules and professional standards and include an in-depth exam of:

  • Certain aspects of a limited number of audits the audit firm performs
  • Certain elements of the firm’s system of quality control over its audit processes


Deficiencies are failures to perform or sufficiently perform certain procedures required by the PCAOB for audit or attestation engagements. These deficiencies do not necessarily indicate the broker-dealer’s financial statements or supporting schedules are materially misstated or that there are undisclosed material weaknesses in internal control. The most common deficiencies noted by the PCAOB are related to revenues, the customer protection rule, engagement quality review and examination procedures in attestation engagements.

Of the audits with no audit or other deficiencies, the majority of firms also audited issuers.

Auditing Revenue

The PCAOB cited audit firms when the extent of testing was insufficient for material classes of revenue transactions, most notably commissions, trading gains and losses and advisory fees. Many broker-dealers use other firms for trade processing and clearing and settlement of customer transactions. Audit firms were cited for not performing sufficient procedures on information from outside service organizations.

Customer Protection Rule

Deficiencies in this area increased from PCAOB’s 2014 inspection. In 10 audits, firms failed to adequately test the accuracy and completeness of customer debits/credits. In 12 audits, the firm did not perform sufficient procedures on the possession and control supporting schedules.

Engagement Quality Review

The 2015 inspection was the first in which all broker-dealer audits had to be conducted under PCAOB standards, which included an engagement quality review. An audit firm is obligated to establish and maintain a system of quality control to provide the firm with reasonable assurance that the firm and its personnel comply with professional standards and applicable legal and regulatory requirements and that reports issued by the firm are appropriate in the circumstances. The PCAOB found 59 audits with deficiencies in this area, primarily from insufficient review by the engagement quality reviewer.

Next Steps

In 2016, the PCAOB plans to continue the interim inspection program by inspecting 75 audit firms, covering roughly 115 audits and attestation engagements. The PCAOB encourages management and audit committees of broker-dealers to ask their auditors how areas addressed in the 2015 report are being handled in their audits.

PCAOB staff is working on a rule proposal for the board to consider in 2016 to establish a permanent inspection program.

BKD remains committed to the highest standards of audit quality and fully supports the PCAOB’s inspection process in improving audit quality to better meet investors’ needs and serve the public interest.

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