What are PCAOB Standards in Broker Dealer Auditing?

Companies that provide broker dealer audit services must follow several standards to ensure they maintain precise bookkeeping data for clients. If you run a broker business that wants to undergo a thorough audit, the company that you hire to perform the audit should follow the standards created by the Public Company Accounting Oversight Board (PCAOB). At Ernst Wintter & Associates, our company follows every audit standard mandated by the PCAOB.

The PCAOB rose from the ashes of the historic financial meltdown that unfolded in late 2007, which forced lawmakers at both the state and federal levels to make reforms. Although the collapse of the housing market precipitated the financial meltdown, brokers also felt the impact of the monumental changes imposed by legislative bodies from Albany, New York, to Washington, D.C. The Consumer Protection Act and the Dodd-Frank Wall Street Reform Act granted the PCAOB considerably more power to oversee the audits conducted for broker dealers registered with the United States Securities and Exchange Commission (SEC).

What PCAOB Standards Must Broker Dealers Follow for Audits

When the reforms in the United States financial system began to take place right after the financial meltdown of 2007-08, lawmakers first tackled fundamental issues such as the frequency of audits. Before the SEC stepped in to apply tougher auditing standards, companies did not have to follow a schedule for receiving regular audits. To meet the auditing standards set by the SEC and enforced by the PCAOB, businesses should receive an audit one time a year to ensure full compliance.

When broker dealers file reports with the SEC, federal law requires them to include the appropriate financial statements that support every section of an audit. The reports filed must come from an independent accounting firm that has registered with the PCAOB. Broker dealers receive broker dealer audit services to file compliance and exemption reports that are prepared by the same independent accounting firm that completed the comprehensive audit report. The Dodd-Frank Wall Street Reform Act gives the PCAOB the legal power to create an inspection program for independent accountants to follow when auditing broker dealers.

Another important PCAOB standard that broker dealers must follow concerns the examination requirements for each statement. Broker dealers must present sufficient evidence that is based on empirical data to meet the examination standard established for each accounting statement. Compliance with examination standards should come from the empirical data collected over the most recent year. Broker dealers must consider the risk of fraud, which includes the misuse of consumer financial assets. Each examination standard followed by broker dealers should be based on the size and type of organization undergoing an audit.

Broker dealers that plan to request exemptions to certain audit standards must turn to the PCAOB to ensure they meet the legal standards that allow for the submission of exemptions. The PCAOB has created specific rules for claiming exemptions to prevent broker dealers from omitting critical financial information. According to rule 17a-5 created by the PCAOB, certified independent accountants must acquire at least moderate assurance from broker dealers that the broker dealers meet the exemption standards defined by the PCAOB.

What Can Broker Dealers Expect in the Future

Nearly 20 years have passed since the monumental legal changes for auditing standards swept over the broker dealer industry. Are there more legal changes on the horizon for the companies that conduct broker dealer audits? If history is our guide, it will take another seismic financial meltdown for the SEC to impose additional regulatory standards.

What Do Broker Dealer Audit Services Look For During Audits?

After the financial meltdown towards the end of 2007, the United States Congress passed a series of laws to tighten regulations on banks and other financial institutions that sold securities. As the most influential piece of legislation, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 imposed several rules and regulations to prevent future acts of securities fraud.

As the organization responsible for overseeing broker dealers, the Public Company Accounting Oversight Board (PCAOB) applied several additional standards for broker dealers to follow. One of the most important standards concerns how often broker dealers must complete broker dealer audit services. Another important standard applied by the PCAOB involves describing what the companies that provide broker dealer audit services must look for during audits.

Here are four critical areas that Ernst Wintter & Associates look at during audits.

Verify Revenue Sources

In addition to complying with government regulations, as well as the standards applied by the PCAOB, companies that provide broker dealer audit services also look for certain accounting areas to help investors decide where to invest their money. One accounting area that is especially helpful for investors is revenue sources. Investors want to know whether a nonprofit organization is generating enough money to remain financially viable.

One of the most important types of broker dealer audit services that we offer is to perform a comprehensive audit that confirms every source of revenue generated by a nonprofit organization.

Ensure Bills Get Paid On Time

Most organizations focus on generating the revenue they need to fulfill their missions. What many organizations fail to do is stay on top of paying bills. Our team of accountants ensures every bill gets paid on time by examining the accounts payable ledger. We also go through every current bill to ensure our clients do not fall behind on fulfilling debt obligations. Since nonprofits operate on razor-thin budgets, failing to pay just one bill can send them into the red.

Review Financial Disclosure Statements

According to federal law, nonprofit organizations must submit accurate financial disclosure statements before specified deadlines for state and federal regulatory agencies to examine. If your nonprofit sends inaccurate financial disclosure statements, your organization might lose its nonprofit status. You can expect to lose your nonprofit status if your organization fails to send in the proper documents. EWA helps clients meet the deadlines for filing accurate financial disclosure statements.

Follow State and Federal Regulations

The flurry of rules and regulations imposed by state and federal government agencies can overwhelm an understaffed nonprofit organization. With the administrative support provided by EWA, your nonprofit organization complies with every rule and regulation applied at the state and federal levels. If you do not comply with government regulations, you face penalties that run from as light as a small fine to as heavy as having to close your nonprofit organization permanently.

Broker Dealer Audit Services Keeps Your Nonprofit Financially Healthy

At EWA, our team of accountants understands you have to juggle several responsibilities at the same time, which include recruiting volunteers and attracting the interest of potential donors. Remove one important responsibility from your long list of things to do by hiring EWA to provide professional broker dealer audit services.

Am I Required By Law to Use Broker Dealer Audit Services Regularly?

Broker dealers represent businesses that buy and sell securities either for themselves or on behalf of clients. To follow the guidelines established by the Securities and Exchange Commission (SEC), broker dealers must have their financial statements examined by an independent accounting firm. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 grants management of the auditors of broker dealers to the Public Company Accounting Oversight Board (PCAOB).

The question is not should firms that buy and sell securities use broker dealer audit services. The answer clearly is yes as mandated by the SEC and closely monitored by the PCAOB. The question becomes how often do broker dealers have to undergo independent audits by firms such as Ernst Wintter & Associates? To comply with SEC regulations, broker dealers should use broker dealer audit services every one to four years. However, receiving an independent audit at least one time a year ensures compliance with PCAOB inspection and registration guidelines, as well as SEC regulations.

What Does the Law Require From Broker Dealers?

When broker dealers file their reports with the SEC, they are required by federal law to include financial statements and every supporting schedule. They also must submit the audit reports compiled by an independent accounting firm that is registered with the PCAOB. Broker dealers use broker dealer audit services to file exemption and compliance reports, along with review and examination documents prepared by the same independent accounting firm that prepared the audit reports.

The Dodd-Frank Act authorizes the PCAOB to create an inspection program for the independent accountants that provide broker dealer audit services. Most of the federal law regulating broker dealer audit services gives the PCAOB flexibility in determining the scope of inspections, as well as how often they must occur. Every audit conducted by accountants that provide broker dealer audit services must comply with PCAOB standards.

What Are the Standards for Providing Broker Dealer Audit Services?

One standard required by the PCAOB concerns the requirements broker dealers must follow when adding statements to their financial reports. According to the PCAOB, broker dealers must gather sufficient evidence based on empirical data to comply with the examination standards established by the PCAOB. Independent accounting firms that provide broker dealer audit services must follow all examination standards during the most recent fiscal year. The examination standards monitored by the PCAOB also should consider the risk of fraud, which includes the abuse of consumer financial assets.

Every examination standard created and monitored by the PCAOB should be implemented based on the size and organizational structure of an audited broker dealer. The PCAOB defines what qualifies exemptions of certain information to ensure broker dealers do not omit critical financial data and information. According to SEC Rule 17a-5, independent accounting firms that provide broker dealer audit services must obtain assurance from broker dealers that the audit broker dealers meet the exemption requirements set forth by the PCAOB.

The goal of the standards created and implemented by the PCAOB is to persuade broker dealers to maintain and present accurate financial records.

The Bottom Line: Broker Dealers Should Use Broker Dealer Audit Services Regularly

Federal law requires broker dealers to undergo financial inspections conducted by an independent accounting firm. Although broker dealers have up to four years to complete independent audits, they should consider completing audits at least one time a year to comply fully with SEC and PCAOB guidelines and standards.