Sarah Paciocco
Sarah Paciocco
Sarah Paciocco
,
CPA
Sarah Paciocco
Broker-dealer Audits and Compliance

Broker-dealer Audits and Compliance

Securities broker-dealers took a hit when the $65 billion Ponzi scheme run by investment advisor, Bernie Madoff, surfaced in December 2008. An unregistered audit firm had been signing off on Madoff’s financial statements without asking questions for at least 17 years. This led to any securities broker-dealers which traded publicly traded securities to be required to have an audit under the oversight of the Public Company Accounting Oversight Board (PCAOB).

The PCAOB compiles and publishes a summary inspection report each year. In 2019 the PCAOB inspection report indicates there are 411 public accounting firms registered with the PCAOB that performed audits of broker-dealers, indicating the number of accounting firms performing broker-dealer audits has been cut nearly in half since 2011. The reason is due to increased requirements for sufficient audit evidence for areas of the audit. The report also indicates that approximately 71% of broker-dealer audit engagements had audit deficiencies. The main deficiencies included revenue, consideration of entity’s ability to continue as a going concern, post-audit matters, and financial statement presentation and disclosures.

What exactly does it mean for you?

When it comes to being audited, it may mean that broker-dealers are required to keep a lot more documentation to stay in compliance with all the regulatory requirements. All broker-dealers, whether publicly or privately owned, are regulated by and required to be registered with the Securities and Exchange Commission (SEC) and require annual audited financial statements and either a compliance report or exemption report. These audited financial statements must include reports of an independent public accountant in accordance with PCAOB auditing standards. In addition to this, the broker-dealer also needs to follow rules and guidance put out by the Financial Industry Regulatory Authority, or FINRA, which requires quarterly and annual reports and must also be sent the annual audit report. The Securities Investor Protection Corporation, or SIPC, also helps protect inventors if the broker-dealer firm fails financially and requires the audit report as well. If the broker-dealer has custody of assets for their clients, then an annual surprise custody examination also needs to be conducted to examine certain books and records related to the advisor’s custody of the assets in addition to a financial statement audit. While it is a lot in terms of compliance, it falls under the common goal of protecting investors and their assets from any unfair practices or scandals.

With the increased requirements for firms conducting broker-dealer audits, many firms have phased them out of the services offered. Our team at ADKF, P.C. has the knowledge to work with you to assist in the annual audit and other compliance requirements for this highly scrutinized business area. We are registered with the PCAOB and meet all requirements to successfully perform broker-dealer audits to ensure our clients are in compliance with all entities involved. If you are currently looking for a new auditor to help with your annual audit and other compliance efforts, please do not hesitate to reach out to us with any questions you may have.


ADKF
is the largest, locally owned public accounting firm in San Antonio, Texas, with branch offices in Boerne and New Braunfels. We have been serving our community since 1991. We are a full-service CPA firm dedicated to providing a broad range of tax, audit, bookkeeping, tax controversy, and consulting services with superior customer service to help our clients meet their goals and objectives. Please click here to set an appointment with us.

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