PCAOB Proposals Regarding Broker-Dealers and Their Auditors


By Shawn Edwards

In December 2010, the Public Company Accounting Oversight Board (PCAOB) issued proposed guidance that will affect both broker-dealers and their auditors.

The PCAOB began its involvement with auditors of broker-dealers in 2009 when the audits of broker-dealer financial statements were required to be performed by PCAOB registered accounting firms. During this time in which the audits were still being performed in accordance with the AICPA’s auditing standards (rather than the PCAOB’s auditing standards), some accounting firms elected to discontinue performing audits for broker-dealers.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 charged the PCAOB with the responsibility to oversee auditors of all brokers and dealers registered with the Securities and Exchange Commission (SEC). To accomplish this new responsibility, the PCAOB proposed a rule for public comment that would put into place an interim inspection program for auditors of broker-dealers. The interim inspection program would result in the issuance of general public reports by the PCAOB, but would not result in the issuance of individual firm reports by the PCAOB. Within two years of the establishment of the interim inspection program, the PCAOB expects to propose rules for a permanent program that would result in the issuance of individual firm reports, similar to the reports issued in conjunction with inspections of auditors of public company filers.

To support the costs associated with the inspection program, the PCAOB has also proposed a rule that would result in the assessment of a share of the Accounting Support Fee to broker-dealers registered with the Financial Industry Regulatory Authority (FINRA). Based on the proposed rule, the fee would only be assessed to broker-dealers with net capital in excess of $5 million, which is approximately 14% of the FINRA registered broker-dealers.

As the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the PCAOB seek to improve the quality of broker-dealer audits, there are two things that are likely to occur. First, more accounting firms will likely either discontinue performing audits of broker-dealers, or they will increase their fees associated with performing broker-dealer audits. Second, broker-dealers will likely see higher costs as they are assessed a portion of the PCAOB’s Accounting Support Fee and their audit fees go up.

It will be important for broker-dealers to monitor these proposed rules and stay in contact with their accounting firms to ensure that year-end audit requirement is complied with in a timely and cost-effective manner.

For further information, please contact Shawn Edwards, Assurance and Advisory Services.

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