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September 22, 2023

PCAOB’s Latest Report Finds That Auditors of Broker-Dealers Suck, Too

PCAOB Auditor Wrecking Ball Tour 2012 rolls on with the an interim report on the auditors of broker-dealers. And this time there's 100% deficiency! 

From the Executive Summary of the Report on the Progress of the Interim Inspection Program Related to Audits of Brokers and Dealers

This report presents observations from inspections of portions of 23 audits at ten firms conducted as part of the interim inspection program. The audits and firms selected are not necessarily representative of all broker and dealer audits and their auditors. The approach used in the selection of audits of brokers and dealers considered a number of different factors intended to provide the Board with information necessary to inform future Board actions. This approach differs from the methodology used in the selection of audits of issuers by firms subject to regular inspection. The Inspections staff identified deficiencies in all of the audits inspected. While these results cannot be generalized to all broker and dealer audits, the nature and extent of the findings are of concern to the Board.
The deficiencies ranged from those related to the net capital rules to the audits themselves and even a couple for independence. The biggest problem areas were the "Accountant's Supplemental Report on Material Inadequacies":
In 21 of the 23 audits, Inspections staff found that firms failed to perform sufficient audit procedures to obtain reasonable assurance that any material inadequacies found to exist since the date of the last examination in the accounting system, internal accounting controls, and procedures for safeguarding securities would have been disclosed in the accountant's supplemental report. Inspections staff found that firms did not test or sufficiently test controls related to the areas covered in this report.

Consideration of fraud:

In 13 of the 23 audits, Inspections staff found that firms did not perform sufficient procedures to identify, assess, and respond to the risks of material misstatement of the financial statements due to fraud.  
And revenue recognition:
In 15 of the 23 audits, Inspections staff found that firms did not perform sufficient procedures to test the occurrence, accuracy, and completeness of revenue.

None of the ten accounting firms nor the 23 audit clients were named anywhere in the report. That means if you wanted to avoid either the firms responsible for the audits or the broker-dealers charged with their clients' investing dollars, you're on your own! Unless, of course, Jon Weil can clear his schedule for the rest of his natural life to dig up the names.

More PCAOB Inspection reports:
Crowe Horwath May Have the Worst PCAOB Inspection Report Yet
The PCAOB Inspection Report of Grant Thornton Could Have Been Worse
McGladrey's PCAOB Inspection Report Is Pretty Awful
Here's the Ernst & Young PCAOB Inspection Report for Your Reading Pleasure
As it Stands Right Now, Deloitte Was the Worst Big 4 Audit Firm in 2010
In Case the Tryptophan Doesn't Work, Here Are the KPMG and PwC PCAOB Inspection Reports for Your Reading Pleasure

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