Many B-D Audits Riddled with Misstatements, Errors: PCAOB

Numerous audits of broker-dealer financial statements have been plagued with errors, including major misstatements of income, according to research from the Public Company Accounting Oversight Board (PCAOB).

The PCAOB chose 50 audit firms that had broker-dealers as clients and reviewed 92 audits of financial statement periods ending between April 1, 2021, and March 31, 2022.

It discovered that 58% of the statements had some form of deficiency, a reduction from a similar study in 2020, and 61% had issues, up from 49% in 2021.

In addition, 34% of audits were marred by a major misrepresentation of revenue, which was lower than 47% in 2020 but somewhat higher than 33% in 2021.

The PCAOB stated that it discovered instances of failure to adequately assess the accuracy of reported commissions, assets under management in relation to investment advising fees, and trading gains and losses.

Other areas of concern included investment banking fees as well as merger, acquisition, and other consulting costs.

According to the PCAOB, businesses failed to analyze whether investment advice fees, variable annuity trails, and 12b-1 fees reported as commissions revenue should have been disaggregated.

“We recommend that firms consider how revenue from contracts with customers is (1) presented, including taking into account how information about the broker-dealer’s revenue was presented in its Financial and Operational Combined Uniform Single report when evaluating the broker-dealer’s selection of categories to use to disaggregate revenue; and (2) disclosed, including evaluating whether the broker-dealer disclosed information about its performance obligations for each of its business activities,” the PCAOB wrote.