Deficiencies Auditors Find with Broker-Dealers

by | Nov 25, 2019 | Tax and Accounting Desk

Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m back again with Marty Lindle, one of our audit directors and one of the faces of PKF Texas’s Broker-Dealer team. Marty, welcome back to the playbook.

Marty: Great to be here.

Jen: What are some typical findings you see when you’re auditing the broker-dealers?

Marty: Well, the most common finding in this latest inspection report had to do with testing revenue and there was about a 60 percent deficiency rating in the files that they inspected. You have to understand with the PCAOB there’s a couple of standards that are specific to broker-dealers, but the vast majority of the standards are applicable to all PCAOB of the registrars.

Jen: Okay.

Marty: So, they may look at revenue for a broker-dealer the same way that they look at it for IBM or Apple or Microsoft.

Jen: Any of the big public companies.

Marty: Any of the big public companies. And the vast majority of broker-dealers are small privately held companies that just didn’t have that detailed level of revenue testing under the old standards.

Jen: Okay. Anything else that you’re seeing?

Marty: One of the other major findings were they found deficiencies in the what we call the engagement quality review. There was about a 65 percent deficiency rate there, and that’s something that’s unique to a PCAOB audit. It’s different than an AICPA audit in that there has to be a separate partner review on it.

Jen: Oh my gosh. Okay.

Marty: So, I think, quite frankly, I think some of this is the PCAOB’s fault, because if you actually read the standard, it doesn’t really require the level of detail that they really make you do in practice. So, they find a lot of deficiencies in your quality control review that would tend to also be problematic if your auditor is a small firm or a sole proprietor, because you’re supposed to have somebody who has the equivalent knowledge and skill that the engagement partner does.

Jen: Kind of that cross check of work. Okay, perfect. Anything else?

Marty: I think I mentioned before but independence has been one that has seen the greatest improvement. That was something that’s also confusing in the industry and that previously private companies can have things done by their auditors that public companies can’t do, and so, there was just confusion in the industry about whether the SEC rules apply to broker-dealers and it turns out they said that they did.

Jen: So they gave that extra little bit of clarification then?

Marty: Yes.

Jen: Well, that’s good. Well, Marty we will get you back to talk some more broker-dealer topics, sound good?

Marty: Sounds good.

Jen: For more information about broker-dealers, visit This is been another Thought Leader production brought to you by PKF Texas the Entrepreneur’s Playbook. Tune in next week for another chapter.

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