Fact Sheet: Annual Report on the Progress of the Interim Inspection Program Related to Audits of Brokers and Dealers (August 18, 2015)

Why the Board is Issuing this Report

The Public Company Accounting Oversight Board released its annual report on the progress of the interim inspection program for auditors of brokers and dealers registered with the Securities and Exchange Commission.

The interim program began in the fall of 2011 in response to the Board's new oversight authority provided in the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Board has issued annual progress reports on the interim program beginning in August 2012.

The Interim Inspection Program

Inspections of Registered Public Accounting Firms During 2014

Audit Deficiencies

Audit deficiencies were noted at all 66 firms inspected and in portions of 92 of the 106 audits selected for inspection (or approximately 87 percent).

The most frequent audit deficiencies were observed in the following areas:

Additionally, seven audits by seven firms were selected to evaluate whether or how certain audit deficiencies identified during a previous inspection had been addressed in the current audit. In all seven audits, at least one audit deficiency in the same area as previously identified was noted by Inspections staff.

Independence Findings

Inspections staff found that, contrary to the requirements of SEC independence rules, some auditors were involved in the preparation of financial statements that they audited, and some auditors included in the terms of the engagement letter language that would indemnify the auditor in the event of incurred losses.

Independence findings were identified in approximately 25 percent (26 of 106) of the audits selected for inspection. These findings included:

Summary of Inspections of Registered Public Accounting Firms Since Inception of the Interim Inspection Program

Since inception of the interim inspection program through the end of 2014, the Board has inspected 155 registered public accounting firms covering portions of 279 audits that were required to be performed under GAAS. Thirteen of these firms were inspected more than once.

Overall Observations

Observations by Firm Characteristics

Observations by Broker-Dealer Characteristics

Next Steps of the Interim Inspection Program

Future Inspections

Scope of a Permanent Inspection Program

Other Initiatives