As a result of a number of corporate scandals, including Enron, Congress passed the Sarbanes-Oxley Act (SOX) in 2002 to establish the Public Accountancy Oversight Board (PCAOB). The intent was to establish an organization that would oversee audit standards. After the Act was passed, the Securities Act was amended, requiring registered broker-dealers to submit financial statements certified by a registered public accounting firm (aka, your annual audit). A registered public accounting firm is one that has applied for and been granted membership in the PCAOB.
Beginning in August 2003, the Securities and Exchange Commission (SEC) issued a series of orders permitting non-public broker-dealers (which applies to most of the firms that Regulatory Compliance services) to file financial statements that have been audited by an “independent” public accounting firm, as opposed to a registered public accounting firm.
The last order, issued on December 12, 2006, extended the exemption to cover financial statements for fiscal years ending before January 1, 2009. This order expired and the SEC has given no indication that it intends to reinstate it, given recent events such as the Bernie Madoff scandal.
As a result of the recent expiration of the December 12, 2006 order, effective January 1,, 2009, all broker-dealers are now required to have their annual audit performed by a registered public accounting firm. Firms must ensure that their auditor is a member of the PCAOB when entering into an engagement for their audit. You can verify that your auditor is registered by visiting www.pcaob.com and reviewing the alphabetic or geographic listing of member firms. In a review of the auditors used by our clients in 2008, we found that about 60% utilized auditors that are current members of PCAOB.
Here comes the tricky part. Just like your firm is subject to regulatory oversight as part of its membership privileges, so are members of the PCAOB. However, the PCAOB issued a statement in early January that says that under Sarbanes Oxley, the Board does not have oversight authority over private company audits. As a result, audits of non-public broker-dealers, like other private company audits, are not subject to Board inspection and cannot be the basis for Board disciplinary action against the accounting firm.
And just in time for us to say, “this isn’t so bad for the little guy…” (and for you), along comes a firm called Friehling & Horowitz of N.Y., that wasn’t under the PCAOB’s jurisdiction. That would be the firm that audited Bernie Madoff, LLC. On February 26, the chairman of the House Financial Services Capital Markets Subcommittee, Paul Kojorski, proposed a bill to require ALL PCAOB-registered auditors to be subject to additional oversight, even if they do not audit public firms.
If your firm still uses the service of an independent auditor, please continue reading. If your firm is the only broker-dealer that your independent auditor services, understand that your auditor may not want to subject themselves to unwanted oversight or they may pass this cost on to you. It is best to determine at your earliest convenience if your unregistered auditor will become registered. If not, you will need to find a new auditor. In addition, as a result of the proposed legislation requiring PCAOB oversight of firms that audit non-public entities, if your auditor is currently registered, and only services non-public firms, they may withdraw their registration with PCAOB.
We all know compliance “costs.” It costs if you do; it costs if you don’t. If you need to change your auditing firm because your auditor does not wish to become registered with PCAOB or decides to withdraw their membership, Regulatory Compliance has significant contacts in the industry. While we cannot recommend a specific firm to you, we can provide your firm with a list of several alternatives.
Keep In mind, if you enter into an engagement with a new auditor, you need to provide notification to FINRA and the SEC regarding this change.
If you need more information on the requirements to have a PCAOB member auditor, assistance in determining if your auditor is already a member, or help in finding a new auditor, Regulatory Compliance can help. Your Compliance Partners account manager, FINOP and our Accounting team are all well versed in these matters and can be reached at (603) 434-3594 or (888) 734-2667.
Back to top
Back to Newsletter
|
