Broker dealer audit services apply several standards to ensure broker dealers maintain accurate bookkeeping records. The question is not whether your broker dealer should apply audit services standards to ensure accurate bookkeeping records. Instead, the question should be which firm providing broker dealer audit services follows the standards established by the Public Company Accounting Oversight Board (PCAOB).
At Ernst Wintter & Associates, we closely follow the audit standards issued by the PCAOB.
A Brief History of the PCAOB
The financial meltdown of late 2007 and all of 2008 left a lasting impression on lawmakers at both the state and federal levels. Although the collapse of the housing market initiated the financial crash, broker dealers also felt the impact of the sweeping legislation in the following years. For example, the Dodd-Frank Wall Street Reform and Consumer Protection Act amended the Sarbanes-Oxley Act to provide more legal power for the PCAOB to administer the audits conducted on the broker dealers registered with the Securities Exchange Commission (SEC).
On January 18, 2015, the PCAOB issued a press release detailing the data collected from five audit and attestation engagements of companies providing broker dealer audit services. The SEC ordered the PCAOB to conduct the audits for the first time according to the new, tougher standards. After a detailed investigation, the PCAOB concluded all five of the audit firms offering broker dealer audit services failed to comply fully with the new, tougher auditing standards. Specifically, the PCAOB discovered the five firms failed to implement the attestation standards required by the amendments made to SEC Rule 17a-5.
What Are the Attestation Standards That Must Be Met for Broker Dealer Audit Services?
Attestation standard number one established the requirements for the examination of several statements made in the reports filed by broker dealers. Broker dealers must acquire sufficient evidence based on empirical data to comply with the examination standard. Compliance with the examination standard should be effective during the most recent fiscal year. In addition, the examination standard states broker dealers must consider the risk of fraud, which includes the misuse of consumer financial assets.
Every examination standard created by the PCAOB should be scalable based on the size and complex organizational structure of the audited broker dealer.
Another important PCAOB standard concerns broker dealers that request exemptions from filing certain information. The PCAOB defines exemptions to prevent broker dealers from conveniently leaving out critical review data. Following SEC Rule 17a-5, auditors must obtain at least moderate assurance from broker dealers that they meet the exemptions defined by the PCAOB. Broker dealers must present valid arguments that justify requested exemptions.
Where Do We Go From Here?
Several years have passed since the PCAOB issued a flurry of auditing standards for broker dealers. Is it going to take another widespread financial crisis for the SEC to order new regulatory standards, or are the current standards enough to ensure the utmost compliance from broker dealers?