PCAOB Report Sees Improvements in Broker-Dealer Inspections

The PCAOB, which has registration, inspection, standard-setting, and disciplinary authority over auditors of brokers and dealers registered with the SEC, recently released its report on 2020 inspections. The Annual Report on the Interim Inspection Program Related to Audits of Brokers and Dealers provides information about the PCAOB’s 2020 inspections approach and a summary of inspections observations. Overarching observations from the 2020 inspections of firms that audit broker-dealers include the following:

• The number of firms that had one or more audit and/or attestation engagements with deficiencies showed a 14% drop from 2019 but remained high as a percentage of firms inspected (78%).
• The number of audit engagements with deficiencies declined 15% from 2019 levels but remained high as a percentage of engagements reviewed (61%) primarily due to deficiencies in auditing revenue.
• The percentage of examination engagements with deficiencies declined slightly to 67% of engagements reviewed from 69% in 2019 but remained high primarily due to deficiencies in testing internal control over compliance. Examination engagements address assertions made by broker-dealers in compliance reports.
• Generally, the results of inspections of firms that audited more than 100 broker-dealers resulted in lower percentages of audit engagements with deficiencies, compared to the results for firms that audited 100 or fewer broker-dealers. For firms that audited more than 100 broker-dealers, the percentage of audit engagements with deficiencies declined to 38% in 2020 from 41% in 2019. For all other firms, the percentage of audit engagements with deficiencies declined to 71% in 2020 from 84% in 2019.