2016 Inspections of Broker-Dealer Auditors Find 10 Percent Independence Deficiency Rate

AUGUST 18, 2017  RECENT DEVELOPMENTS

According to the PCAOB's annual report on its 2016 inspections of broker/dealer auditors, inspectors identified independence deficiencies in ten (10) percent of inspected audits (compared to seven (7) percent in 2015).  Firms that do not audit public companies conducted all eleven (11) audits with independence deficiencies, which resulted from the firms' performance of prohibited services, particularly, preparing client financial statements or performing bookkeeping or other prohibited services. An except from the report appears below: 

"In the 2016 inspections, Inspections staff observed that the firms performed bookkeeping or other services related to the broker-dealer's accounting records, or prepared, or assisted in the preparation of, the broker-dealer's financial statements, supplemental information, or exemption reports. One of these firm's independence also appeared to be impaired because the terms of the engagement letter for the audit stated that the broker-dealer would indemnify the firm from all claims, liabilities, losses, and all expenses arising in connection with the audit engagement when there was a knowing misrepresentation by the broker-dealer's management."

A press release from the Board quotes Helen Munter, PCAOB Director of Registration and Inspections, who said, "I hope auditors will use the information in this report to help plan and perform their audit and attestation engagements."

The annual report is the the sixth the PCAOB has issued under its interim inspection program for auditors of broker-dealers; it covered the 2016 inspections of 75 firms and portions of 115 audits and related attestation engagements.  At some point the Board is expected to propose a rule to establish a permanent inspection program.