Broker-dealer audit material misstatements attributable to fraud are climbing sharply, the Public Company Accounting Oversight Board cautioned Friday.
PCAOB examiners found the lapses in 57 percent of the firms inspected in 2016 compared to 42 percent the year before, the regulator said in its annual broker-dealer inspection report.
The two types of fraudulent misstatements the agency said it is most concerned about are from fraudulent financial reporting and misstatements arising from
misappropriation of assets.
Overall, the PCAOB said broker-dealer audit deficiencies continue at an alarmingly high rate.
Deficiencies were found in 97 percent of firms the PCAOB reviewed in 2016 compared to 96 percent in 2015.
The Board said the high level of deficiencies indicates disregard for PCAOB standards by brokerage auditors.
“(PCAOB inspectors) continue to identify engagements in which the auditor prepared the financial statements for their audit clients, did not perform any tests of controls over compliance for examination engagements, or did not
perform the required engagement quality review,” the agency said in the annual report.
The report covers PCOAB inspections of 75 brokerages in 2016 and portions of 115 audits and related accounting activities.