Am I Required By Law to Use Broker Dealer Audit Services Regularly?

Broker dealers represent businesses that buy and sell securities either for themselves or on behalf of clients. To follow the guidelines established by the Securities and Exchange Commission (SEC), broker dealers must have their financial statements examined by an independent accounting firm. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 grants management of the auditors of broker dealers to the Public Company Accounting Oversight Board (PCAOB).

The question is not should firms that buy and sell securities use broker dealer audit services. The answer clearly is yes as mandated by the SEC and closely monitored by the PCAOB. The question becomes how often do broker dealers have to undergo independent audits by firms such as Ernst Wintter & Associates? To comply with SEC regulations, broker dealers should use broker dealer audit services every one to four years. However, receiving an independent audit at least one time a year ensures compliance with PCAOB inspection and registration guidelines, as well as SEC regulations.

What Does the Law Require From Broker Dealers?

When broker dealers file their reports with the SEC, they are required by federal law to include financial statements and every supporting schedule. They also must submit the audit reports compiled by an independent accounting firm that is registered with the PCAOB. Broker dealers use broker dealer audit services to file exemption and compliance reports, along with review and examination documents prepared by the same independent accounting firm that prepared the audit reports.

The Dodd-Frank Act authorizes the PCAOB to create an inspection program for the independent accountants that provide broker dealer audit services. Most of the federal law regulating broker dealer audit services gives the PCAOB flexibility in determining the scope of inspections, as well as how often they must occur. Every audit conducted by accountants that provide broker dealer audit services must comply with PCAOB standards.

What Are the Standards for Providing Broker Dealer Audit Services?

One standard required by the PCAOB concerns the requirements broker dealers must follow when adding statements to their financial reports. According to the PCAOB, broker dealers must gather sufficient evidence based on empirical data to comply with the examination standards established by the PCAOB. Independent accounting firms that provide broker dealer audit services must follow all examination standards during the most recent fiscal year. The examination standards monitored by the PCAOB also should consider the risk of fraud, which includes the abuse of consumer financial assets.

Every examination standard created and monitored by the PCAOB should be implemented based on the size and organizational structure of an audited broker dealer. The PCAOB defines what qualifies exemptions of certain information to ensure broker dealers do not omit critical financial data and information. According to SEC Rule 17a-5, independent accounting firms that provide broker dealer audit services must obtain assurance from broker dealers that the audit broker dealers meet the exemption requirements set forth by the PCAOB.

The goal of the standards created and implemented by the PCAOB is to persuade broker dealers to maintain and present accurate financial records.

The Bottom Line: Broker Dealers Should Use Broker Dealer Audit Services Regularly

Federal law requires broker dealers to undergo financial inspections conducted by an independent accounting firm. Although broker dealers have up to four years to complete independent audits, they should consider completing audits at least one time a year to comply fully with SEC and PCAOB guidelines and standards.