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August 27, 2013


Oversight Board Tightens Requirements with Broker-Dealer Audits

Regulators say that auditors of broker-dealers are lacking in their performance when it comes to compliance with independence requirements and other accounting rules, citing “disappointing” results for the second year in a row. The Public Company Accounting Oversight Board, which oversees audits of public companies, found deficiencies in a review of audit firms performing work for securities brokers and dealers.

Jay Hanson, a member of the group’s board, believes that auditors should “up their game.” Hanson believes that the results are “very similar” to the oversight board’s report released a year earlier, showing that auditors have a “long way to go” to ensure compliance with audit requirements. The reviews were part of an interim inspection program started under new powers granted by the Dodd-Frank financial overhaul.

Of the 43 of the auditors included in the review, 19 were subject to inspection by the oversight board because they audited public companies, the group said. In addition to the problems found in all of the auditing firms reviewed in the latest inspections, the group discovered that 57 of the 60 individual audits had deficiencies.

One such problem found was that auditors of securities firms were helping to prepare the financial statements that they were supposed to be auditing, a clear violation of SEC rules. Similar incidents were found in 22 of the 60 audits. Other problems included problems with the calculations performed for net capital requirements, reported revenue and assets, among other factors.

According to Mr. Hanson, broker-dealers “should be very concerned about this.” He believes that such firms “should pay attention to what their auditors are doing.”

This report comes as the SEC approved rule changes last month that require auditors of broker-dealers to perform audits under the oversight board’s standards. Regulators are attempting to beef up requirements for auditors with recent financial scandals like the Bernard Madoff investment scheme in mind.