A new report by the Public Company Accounting Oversight Board (PCAOB) on inspections of auditors of brokers and dealers shows a high number of audit deficiencies but fewer violations than in previous years.
In the report, the PCAOB inspected 75 audit firms and reviewed portions of 116 audits and the related attestation engagements. Inspectors identified deficiencies at 68 of the 75 firms inspected, or 91 percent, for 2017. This is down from 97 percent in 2016.
The report finds that many of the deficiencies were fundamental to conducting audits, examinations, or reviews. The highest frequency of audit deficiencies was in auditing revenue, assessing and responding to risks of material misstatement due to fraud, and auditing supplemental information for the customer protection rule.
Further, deficiencies in audit firm quality control systems occurred in a few different areas, specifically, exercising due professional care and performing engagement quality reviews.
The board recommends that broker-dealers and their audit committees read the report to better understand where inspections found deficiencies. This information can be used to evaluate their programs and procedures to prevent similar deficiencies and improve audit quality. The board also suggests that they share these results with their auditors. The dialogue may help auditors take the necessary actions to avoid audit and attestation deficiencies.