August 22, 2022

The overall quality of broker-dealer audits improved in 2021, according to a PCAOB report, but the PCAOB sees more room for improvement.

Of the 92 broker-dealer audits reviewed in the PCAOB's Annual Report on the Interim Inspection Program Related to Audits of Brokers and Dealers, 49% had identified deficiencies — down from 61% in 2020.

However, the percentage of firms inspected that had identified deficiencies in audit engagements and/or attestation engagements remained steady at 78% year over year. The attestation engagements reviewed had deficiencies in 41% of the cases in 2021, compared with 32% in 2020.

Attestation engagement deficiencies were found most commonly in examination engagements specifically (64% in 2021), and the PCAOB identified deficiencies in testing internal control over compliance (ICOC) as a key concern.

To improve ICOC, the PCAOB recommended that firms improve the testing of controls in three areas:

• Controls over the accuracy and completeness of information produced by the broker-dealer;
• Controls with a review element; and
• Information technology controls.

"Training and increased involvement of more experienced engagement team members in this aspect of examination engagements may be helpful," the PCAOB stated in the report.

In terms of quality control systems, the percentage of firms with deficiencies related to engagement performance decreased year over year (46% vs. 66%), as did the percentage of engagement quality reviews for audit and attestation engagements that had identified deficiencies (38% vs. 62%).

Still, the PCAOB suggested that firms ensure that their policies and procedures cover all aspects of each engagement, including engagement quality reviews in accordance with AS 1220. The PCAOB recommended that firms "consider appointment of individuals from outside the firm as engagement quality reviewers when necessary to meet the qualification requirements."

The draft of the PCAOB's five-year strategic plan that is currently open for public comment includes an enhancement of inspections and a strengthening of enforcement among its top-level goals.

[Journal of Accountancy]