Discussions Broker-Dealers Should Have with Auditors

On August 20, 2018 the PCAOB issued its Executive Highlights Annual Report on the Interim Inspection Program Related to Audits of Brokers and Dealers. The Highlights provided actions for audit firms, 2017 inspection results, and most importantly considerations for broker-dealer owners and audit committees.  As a firm that specializes in the audits of brokers and dealers, it is important that we share with you items that you should be discussing with your auditors at various times throughout the audit process.

Prior to Appointment or Retention

Prior to selecting an auditor, it’s a good practice to ask the following:

  • How does the firm determine compliance with the independence criteria set out in the rules and standards of the PCAOB and the rules of the SEC?
  • What is the firm’s experience with auditing broker-dealers and performing audits in accordance with PCAOB standards? How does the firm determine what personnel assigned to the audit, including the engagement quality reviewer, have the relevant knowledge, skill, and ability to audit broker-dealers?
  • Has the firm ever been inspected by the PCAOB? If so, what were the inspection findings and what corrective actions were taken?

During the Audit

  • How is the firm assessing and responding to fraud risk, including fraud risk specific to revenue recognition?
  • Is the firm relying on management controls to alter the nature, timing, and extent of its substantive procedures? If so, what are the controls and how did the auditor assess the design and operating effectiveness of those controls?
  • What financial information does the firm use in testing the customer reserve computation? What does the firm do to determine whether the information is complete and accurate?
  • How does the firm determine whether the schedule for possession or control of customer securities is fairly stated in all material respects?

At the Conclusion of the Audit

  • Did the firm have the required engagement quality review performed for both the audit and attestation engagement?
  • What are the qualifications of the engagement quality reviewer who performed these reviews?

We would be happy to answer these and any other questions you may have. To learn more or discuss our process and how we can help you with your audit needs contact Rick Wilkens at 708.629.7986 or rw@dscpagroup.com.