6 Questions Broker Dealers Should Ask Their CPA Firm

The Public Company Accounting Oversight Board (PCAOB) has their microscope focused on CPA firms performing broker dealer audits.  Rules and regulations for CPA firms performing broker dealer audits continue to climb, causing many firms to throw in the towel altogether.  Broker dealer audits can be complicated, and unfortunately deficiencies are often noted by the PCAOB.  Broker-dealers need to be aware of the importance of receiving high quality audit services.  Selecting an accounting firm that does not focus on quality can have implications to the broker dealer including increased scrutiny from regulators such as the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC).



The PCAOB recently completed their inspection of audits that were performed in 2019.  The 2019 inspection revealed modest improvement in the rate of deficiencies, but a high rate of deficiencies in certain engagement areas remains.  Now, you may be asking how I tell if a CPA firm is going to provide me with a high level of service before I even work with them.  Below we list six questions to ask a potential CPA firm, to make sure your organization s receiving the highest quality services possible.


  1. Do you have a deep understanding of PCAOB standards?

    Reports, financial statements, and supporting documentation need to be presented and performed in accordance with PCAOB standards.  Failure to follow such standards is an indicator that your CPA firm may not be focusing on the quality of the audit. In addition, the PCAOB has requirements when it comes to providing certain communications to the broker dealer.  As the CPA firm communicates with the audit committee (or equivalent body) this needs to be documented in a formal document and provided to the broker dealer.  The CPA firm also needs to communicate identified significant deficiencies and material weaknesses with broker dealer management and the audit committee (or equivalent body).

  2. What is your process for quality control?

    A strong system of quality control can serve to prevent errors from occurring.  You should be certain that the CPA firm you engage, has a system in place to provide reasonable assurance that personnel will comply with applicable professional, and firm standards.  In particular, the PCAOB has observed frequent deficiencies in their inspection of the following engagements: examination engagements, review engagements and financial statement audits.

  3. How involved will the engagement partner be?

    The engagement partner will bring highly valuable, experienced insight to your engagement.  You want to work with a firm that has a partner who will be hands-on, and available to you when you need them.  Policies and procedures need to provide reasonable assurance that engagement partners reviewed and supervised audit and attestation engagements with due professional care.  Throughout the PCAOB’s inspection they found that absence of partner involvement amongst many firms led to a lack of uncovering deficiencies.  It is important that broker-dealers understand their deficiencies, so they can make improvements for years to come.

  4. What is your firm’s stance on independence and objectivity?

    SEC rules require that auditors of broker-dealers comply with SEC independence requirements.  An auditor cannot assist with the preparation of financial statements and supplemental information that they are in turn auditing.  During the PCAOB’s current inspection they found 17% of firms did not remain independent.  Broker-dealers want to make sure their CPA firm remains independent, so they are provided with insightful and objective recommendations for improvement.

  5. Who does your firm use for their quality review partner?

    Firms need to assign engagement quality review partners that meet that qualifications required by PCAOB standards, and establish policies and procedures that cover the execution of engagement quality reviews pursuant to PCAOB standards.  DKB takes this requirement seriously by using former PCAOB inspectors as the firm’s quality review partner.

  6. How many broker dealer clients do you currently have?

    As noted from the PCAOB report, firms that audit a significant number of broker dealers generally have a lower percentage of errors compared to other firms.


You can find the PCAOB’s entire report “2019 Broker Dealer Annual Report” here.  Like any industry, broker-dealers want to make sure they are receiving highly valuable services.  Unlike all of the other industries, the audit environment surrounding broker dealers is complicated and heavily regulated.  Make sure the firm you are working with has a passion for the broker-dealer industry, and an understanding of the long list of rules and regulations.  This will assist your management team in making well-informed decisions for the betterment of your firm.

If you have questions or concerns regarding your broker dealer please do not hesitate to reach out to me at [email protected].