SIFMA Regional Conference
The Impact of the PCAOB on the Industry
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AGENDA
• PCAOB Standards
• PCAOB Inspection Issues
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PCAOB Release No. 2013‐007
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Final Rule issued on October 10, 2013
The PCAOB adopted two standards in the
release:
1. Attestation Standard No.1: Examination
Engagements Regarding Compliance Reports
of Brokers and Dealers
2. Attestation Standard No.2: Review
E
Engagements
t Regarding
R
di E
Exemption
ti R
Reports
t off
Brokers and Dealers
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PCAOB Att t ti St d d N 1
PCAOB Attestation Standard No. 1
•
Establishes requirements for the auditor with respect to the auditor’s examination of
the compliance report
report.
•
Auditor expresses an opinion on assertions made by broker-dealer in compliance
report
•
Auditor’s examination should evaluate (a) the effectiveness of the ICOC with each
FRR during and at the end of the fiscal year and (b) compliance with the net capital
rule and reserve requirements rule at the end of the most recent fiscal year.
•
Examination engagement coordinated with the audit of the financial statements
•
Auditor must assess the risk of fraud relevant to ICOC.
•
Auditor must test design and operating effectiveness of controls. Includes a mix of
inquiry and observation
•
Perform compliance tests regarding whether the b-d
b d was in compliance with the net
capital rule and reserve requirements rule at the end of the year
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PCAOB Att t ti St d d N 2
PCAOB Attestation Standard No. 2
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Establishes requirements for the auditor with respect to the auditor’s review of the
exemption report
report.
•
Objective is for the auditor to obtain moderate assurance that the broker-dealers
assertions are fairly stated
•
A review encompasses reading the exemption report to determine the exemptive
provisions chosen by the broker-dealer, performing inquiries, evaluating whether
there should be modifications to the b-d’s assertions.
•
Examination engagement coordinated with the audit of the financial statements
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PCAOB Release No. 2013‐008
Final Rule issued on October 10, 2013
• Release 2013‐008 supersedes PCAOB Release No. 2011‐005
• Adopted PCAOB Standard No. 17, Auditing Supplemental Adopted PCAOB Standard No 17 A diting S pplemental
Information Accompanying Audited Financial Statements
• Guidance issued due to the adopted amendments requiring audits of broker‐dealers be conducted in accordance with PCAOB standards
• Examination standard requires the auditors of broker‐dealers to q
communicate certain matters to management and the audit committee in accordance with PCAOB Standard No. 16, Communication with Audit Committees
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PCAOB Audit Standard No. 17
Auditing Supplemental Information
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Covers supporting schedules that broker-dealers must file pursuant to Rule 17a-5.
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Auditor should
• Obtain understanding and evaluate methods of preparing supplemental
information
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Inquire about significant assumptions regarding supplemental information
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Determine that the supplemental information reconciles to underlying
accounting records
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Perform procedures to test the completeness and accuracy of supplemental
information
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Evaluate whether the supplemental information complies with the relevant
regulatory requirements
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PCAOB Ri k St d d
PCAOB Risk Standards
PCAOB Auditing Standards Related to the Auditor
PCAOB
Auditing Standards Related to the Auditor'ss Assessment of, and Assessment of and
Response to, Risk •
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•
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Auditing Standard 8 (AS No. 8) ‐ Audit Risk. Auditing Standard 9 (AS No. 9) ‐ Audit Planning. Auditing Standard 10 (AS No. 10) ‐ Supervision of the Audit Engagement. Auditing Standard 11 (AS No. 11) ‐ Consideration of Materiality in Planning and Performing an Audit
and Performing an Audit. Auditing Standard 12 (AS No. 12) ‐ Identifying and Assessing Risks of Material Misstatement.
g
(
) The Auditor's Responses to the Risks of p
f
Auditing Standard 13 (AS No. 13) ‐
Material Misstatement.
Auditing Standard 14 (AS No. 14) ‐ Evaluating Audit Results. Auditing Standard 15 (AS No. 15) ‐ Audit Evidence. 8
PCAOB Inspections
More than 4,000 broker dealers subject to inspection
Approximately 780 firms audit broker dealers
First report – 10 firms and portions of 23 audits Second report – 43 firms and portions of 60 audits
Thi d
Third report –
t 60 firms and portions of 90 audits (August 2014 60 fi
d
ti
f 90 dit (A
t 2014
anticipated issuance)
• 2014 inspections –
p
anticipate 60 firms and portions of 100 p
p
audits
• PCAOB anticipates extending interim inspection program one year
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•
•
•
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PCAOB Inspection Issues
The Second Report on the Progress of the Interim Inspection Program Related to Audits of Broker‐Dealers – August 19, 2013
Deficiencies related to customer protection and net capital rules:
• Accountants supplemental report on material inadequacies
Accountants supplemental report on material inadequacies
• Procedures regarding the compliance with the Customer Protection Rule
• Procedures regarding compliance with the Net Capital Rule
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PCAOB Inspection Issues
Deficiencies related to the financial statement audits of broker‐
dealers
• Revenue recognition
R
ii
• Risk of material misstatement due to fraud
• Reliance on records and reports from service organizations
Reliance on records and reports from service organizations
• Auditing financial statement disclosures
• Auditing related party transactions
g
p y
• Fair value measurements
• Auditors’ report
• Evaluation on internal control deficiencies
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Questions?
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