A recent report issued by the PCAOB (Public Company Accounting Oversight Board) on the audits of brokers and dealers revealed some very shocking results. Seems like the firms that should be protecting investors is basically just sitting there and collecting their fees without doing any true audit work.
According to the report in 21 out of the 23 audits, the inspection staff found that firms failed to perform sufficient audit procedures to obtain reasonable assurance that any material inadequacies found to exist since last examination in accounting system, internal controls and procedures safeguarding securities would have been disclosed in the accountant’s supplemental report. In more than half of the 23 audits, the staff found that the firms did not perform sufficient procedures to identify, assess, and respond to the risks of material misstatement of the financial statements due to fraud. In 43% of the audits, the staff found that the firms did not perform sufficient procedures to identify the existence of related parties. In 15 out of the 23 audits the staff found that the firms did not did not perform sufficient procedures to test the occurrence, accuracy, and completeness of revenue. There are a few more deficiencies that the report found in the work of the auditing firms.
Based on the report, it seems like the investors should not rely on what the audit reports state as there are quite a few flaws in the work process of these auditors.
