Registration and Inspection of the Auditors of Broker-Dealers

As part of the Dodd-Frank Act, lawmakers granted broad new authority to the Public Company Accounting Oversight Board (PCAOB) to expand its mission beyond auditors of public companies.  Under the Act, the PCAOB has the authority, by rule, to set up an inspection regime for auditors of broker-dealers.  In the rule, the PCAOB may choose specific classes of broker-dealer auditors or mandate that all auditors of all broker-dealers be subject to inspection and registration.  Lawmakers have explicitly indicated to the PCAOB that it should consider the various benefits and risks to investors, auditors, and broker-dealers, as it considers any potential rule.

On June 14, 2011, the PCAOB adopted an interim rule to create a temporary inspection program for auditors of broker-dealers, and determined to include all auditors of all broker-dealers in its pilot program.  In their comments adopting the rule, Board members noted that the final inspection program may be more targeted depending on the findings of the interim program.

The AICPA supports PCAOB registration and inspection of all auditors of broker-dealers with access to client assets, but does not believe inspections should be required of auditors of introducing broker-dealers where such inspections seem unlikely to stop fraud.  The AICPA does not believe that there has been sufficient due diligence or research to warrant regulating auditors of introducing broker-dealers as part of the interim program, but rather advocated for a study to determine the benefits of such regulation.  AICPA believes that this new regulatory responsibility compels the PCAOB to balance the need to protect investors with the desire to avoid unnecessary and excessive regulation.  Regulation without a clear policy rationale will not help prevent future problems.

There are approximately 1,200 firms performing audits of broker-dealers, but only about 10 percent of those broker-dealers are clearing, carrying, or custodial in nature, meaning they actually have access to client funds.  The remaining introducing broker-dealers are prohibited from collecting or holding their clients’ monies.  AICPA believes that changes to PCAOB authority should focus strategically on that 10 percent where any potential fraud or malfeasance is most likely to be detected.  Inspecting the auditors of broker-dealers who don’t account for client monies is unlikely to help stop financial fraud.

The AICPA continues to advocate for a final rule covering auditors of clearing, carrying, and custodial broker-dealers, since it is these broker-dealers that have direct access to investor funds and there is likely to be the biggest benefit to the public from additional oversight.

The AICPA hopes the PCAOB will ultimately adopt a targeted final rule when it undertakes that rulemaking process, currently scheduled for 2013.  The AICPA will continue to work with affected audit firms, broker-dealers, and other interested parties to encourage the PCAOB to develop a balanced and targeted rule.

Copy of Legislation

A copy of the Wall Street Reform and Consumer Protection Act of 2009 is available on the Library of Congress’s THOMAS website.  The most recent version of the bill, and all Congressional actions, are available by searching for H.R. 4173 by bill number in the 111th Congress. The relevant section of the Act is Section 982.

Letters from Members of Congress


May 27, 2011 Letter from House Financial Services Committee Chairman Spencer Bachus and Capital Markets and Government Sponsored Enterprises Subcommittee Chairman Scott Garrett to PCAOB.


February 1, 2011 Letter from Eight CPA Members of Congress (Mike Conaway, Brad Sherman, John Campbell, Lynn Jenkins, Collin Peterson, James Renacci, Bill Flores and Steven Palazzo) to PCAOB.


AICPA Letters

February 15, 2011 Letter to Public Company Accounting Oversight Board Regarding Proposed Temporary Rule for Interim Inspection Program of Auditors of Non-Public Broker-Dealers

December 7, 2009 AICPA Letter in Support of Section 7601 of HR 4173

Staff Contact

Diana Huntress Deem
Senior Manager, Congressional and Political Affairs