New Proposals for Broker-Dealer Audits, Auditing Supplemental Information
The Public Company Accounting Oversight Board (PCAOB) has issued proposals for audit and attest standards for audits of broker-dealer and issuer engagements.
The proposals include two attestation standards related to the auditor’s examination of compliance reports and review of exemption reports of broker-dealers proposed by the U.S. Securities and Exchange Commission (SEC) as part of its amendments to the broker-dealer financial reporting rule under Securities Exchange Act of 1934 Rule 17a-5.
On June 15, 2011, the SEC proposed to amend Rule 17a-5 to require, among other things, a broker or dealer’s annual report to include a financial report and either a compliance report examined by an auditor or an exemption report reviewed by an auditor.
The SEC proposed amendments to Rule 17a-5 require that the auditor’s examination or review of the compliance report and exemption report be conducted in accordance with PCAOB standards.
PCAOB’s proposals also include a new standard on auditing supplemental information accompanying audited financial statements that broker-dealers and issuers file with the SEC.
“Today’s proposals are an important and necessary step for implementation of section 982 of the Dodd-Frank Wall Street Reform and Consumer Protection Act,” said PCAOB Chairman James Doty.
Compliance and exemption reports of brokers and dealers will have to meet the proposed examination standard and review standard when the SEC adopts its proposed amendments to the broker-dealer financial reporting rule under Exchange Act Rule 17a-5.
Sections 17(a) and (e) of the Securities Exchange Act and Exchange Act Rule 17a-5, together require a broker or dealer to file an annual report with the SEC and the broker or dealer’s designated examining authority.
The two proposed attestation standards, Examination Engagements Regarding Compliance Reports of Brokers and Dealers, and Review Engagements Regarding Exemption Reports of Brokers and Dealers, would describe the auditor’s responsibilities for the examination report and review report required by SEC proposed Rule 17a-5.
PCAOB further proposes auditing standard Auditing Supplemental Information Accompanying Audited Financial Statements, which would supersede the its auditing standard, AU sec. 551, Reporting on Information Accompanying the Basic Financial Statements in Auditor-Submitted Documents, and related amendments.
This proposal would establish the auditor’s responsibilities when the financial statement auditor is engaged to audit and report on supplemental information that accompanies the audited financial statements. Examples of such supplemental information include the supporting schedules that brokers and dealers are required to file with the SEC. The proposed standard also would apply to certain supplemental information of issuers that is included in SEC filings.
“Issuing the proposed attestation standards today will allow interested parties to review and comment on both the PCAOB and SEC proposals. The proposed standard on auditing supplemental information fills an important need for audits of broker-dealers and issuers,” said PCAOB Chief Auditor and Director of Professional Standards Martin F. Baumann.
Comments on the proposed standards are due Sept. 12, 2011.