Securities and Exchange Commission
The staff of the SEC Division of Trading and Markets recently issued staff guidance (in the form of FAQs) in connection with these rules. To read FAQs about the amendments to Rule 17a-5 and Form Custody, click here. For FAQs concerning certain broker-dealer financial responsibility rules, click here. Other FAQs published by the staff of the SEC Division of Trading and Markets are available here.
The SEC Office of Compliance Inspections and Examinations announced its 2014 examination priorities for investment advisers and investment companies, broker-dealers, clearing agencies, exchanges and other self-regulatory organizations, hedge funds, private equity funds, and transfer agents.
In July 2013, the SEC issued two final rules that affect broker-dealers registered with the SEC and their auditors. One rule adopts amendments that would increase protections for investors whose cash and securities are held by broker-dealers registered with the SEC. These amendments to SEC Rule 17a-5 require, in part, that the audits of broker-dealers' financial statements and supplemental information, as well as the auditor's examination of the compliance report or the auditor's review of the examination report, be conducted in accordance with PCAOB standards for fiscal years ending on or after June 1, 2014.
Public Company Accounting Oversight Board
The “Third Report on the Progress of the Interim Inspection Program Related to Audits of Brokers and Dealers” was released on August 18, 2014. It states that the PCAOB staff is currently working on a rule proposal for the Board to issue during 2016 to establish a permanent inspection program and its scope. Under the interim inspection program adopted in 2011, the PCAOB inspects audit engagements of all types of broker-dealers.
Until the PCAOB announces the scope of their permanent inspection program, audits of broker-dealers will be subject to both PCAOB inspection and AICPA peer review. Peer reviewers are regularly identifying audits where the firm failed to comply with SEC independence rules by preparing the firm’s financial statements, which is consistent with the PCAOB interim inspection program findings. Read more on this topic and other peer review implications for broker dealer engagements.
On June 26, 2014, the PCAOB released staff guidance for auditors of SEC-Registered brokers and dealers.
The PCAOB announced the dates for 2014 forums on auditing smaller broker-dealers. The SEC staff's recent presentation at the recent forum is available here. Additionally, the PCAOB published the text of Board Member Jeanette M. Franzel’s remarks given at the same forum.
In October 2013, the PCAOB adopted two attestation standards pertaining to audits of brokers and dealers and an auditing standard, which is applicable when auditors are engaged to perform audit procedures and report on supplemental information that broker-dealers and others file with the SEC. These standards are effective for fiscal years ending on or after June 1, 2014.
U.S. Commodity Futures Trading Commission
In November 2013, the CFTC approved a final rule on enhancing customer protections, which, in part, will require audits of futures commission merchants (FCMs) to be performed in accordance with PCAOB standards by a PCAOB-registered firm that “must have undergone a PCAOB inspection”. Find out more.
AICPA/Center for Audit Quality
The Center for Audit Quality (CAQ) and the AICPA have issued a joint member Independence Alert that provides audit firms with an overview of SEC and PCAOB independence rules applicable to financial statement audit and attestation engagements for the following non-issuers:
- Non-issuer broker-dealers that are registered with the SEC as a broker or dealer; and
- Where the engagement(s) is subject to the requirements of Custody Rule, SEC-registered and state registered investment advisers, related party custodians, or private funds (e.g., pooled investment vehicles).
Members of the Expert Panel presented a live webinar “Broker-Dealer Update”, covering final amendments to SEC Rules 17a-5 and 17a-11 and new PCAOB attestation and auditing supplemental information standards for broker-dealer audits. Presentation slides are available.
The Center for Audit Quality (CAQ) and the American Institute of CPAs (AICPA) have jointly issued a Member Alert outlining regulatory changes that are applicable to audits and attestation engagements of Brokers and Dealers (BDs) and Futures Commission Merchants (FCMs), including those entities that are dual-registered.
The Panel has developed an example of an illustrative independent accountants' report on applying agreed-upon procedures related to the entity's claim for exclusion from membership in SIPC (Form SIPC-3), which is currently being reviewed by the specified parties. Once all parties have agreed, an illustrative example of such report will be posted here.