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Financial Reporting and the Law

Brian T. Croteau, deputy chief accountant in the SEC’s Office of the Chief Accountant, indicated that the SEC staff plans to study comment letters on the PCAOB’s recently adopted standards for broker-dealer audits and will make recommendations to the SEC prior to a February 13, 2014 deadline for the SEC to act. Croteau’s remarks came in a speech at the American Institute of CPAs’ December 2013 Conference on Current SEC and PCAOB Developments.

In October 2013, the PCAOB adopted standards and amendments pursuant to its authority under the Dodd-Frank Act to establish auditing and attestation standards applicable to audits of brokers and dealers registered withthe SEC. The newly approved standards and amendments, which are subject to SEC approval, are two attestation standards, an auditing standard, and related amendments.

The attestation standards implement new audit requirements in amended Exchange Act Rule 17a-5. One requires broker-dealers that have custody of customers’ assets to file audited compliance reports with the SEC to verify they are adhering to capital requirements, protecting customer assets they hold, and periodically sending account statements to customers. The other requires a broker-dealer that does not have custody of its customers’ assets to file an audited report with the SEC, citing its exemption from the compliance report requirement.

The auditing standard relates to engagements of an auditor of financial statements to perform audit procedures and report on supplemental information that accompanies audited financial statements. Accordingly, the auditing standard will apply to supplemental information filed by broker-dealers and schedules prepared in accordance with ERISA.

The new standards are expected to be effective for fiscal years ending on or after June 1, 2014, which coincides with the effective date for the SEC’s amendments to Rule 17a-5.