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SEC and PCAOB Developments since July 2018


(Alex B.)

The following is a summary of SEC and PCAOB developments since July 2018.

1.     PCAOB Issues Report on 2017 Inspections of Broker-Dealer Auditors

Issued: August 20, 2018


The most recent PCAOB annual report on its inspection in 2017 of auditors of brokers and dealers shows a continued high number of audit deficiencies overall, while showing fewer independence violations than in previous years.

The PCAOB inspected 75 audit firms and reviewed portions of 116 audits and related attestation engagements.  Deficiencies were identifies at 68 of the 75 firms inspected, or 91%, down from 97% in 2016.

Audit deficiencies were identified with the highest frequency in the following areas (no changes from prior year):

  • Auditing revenue, including (i) sufficient risk assessment procedures to understand the broker-dealer’s products and sources of revenue, internal control over financial reporting, and process for executing transactions; (ii) obtaining sufficient appropriate audit evidence about the completeness and accuracy of information produced by the broker-dealer or the broker-dealer’s service organization; (iii) performing procedures to test the relevant assertions;

  • Assessing and responding to risks of material misstatement due to fraud, including (i) performing substantive procedures, including tests of details, specifically responsive to assessed fraud risks; (ii) identifying improper revenue recognition as a fraud risk or demonstrating how the presumption of fraud risk related to revenue recognition was overcome; (iii) addressing the risk of management override of controls, including testing journal entries; and

  • Auditing supplemental information for the customer protection rule.

Audit firm quality control system deficiencies were identified in areas such as exercising due professional care and performing engagement quality reviews.

Link to the report and executive highlights on PCAOB website: 

2.     SEC Issues Disclosure Update and Simplification Release No 33-10532

Issued: August 17, 2018


The rule amends various SEC disclosure requirements that the Commission has determined to be redundant, duplicative, overlapping, outdated, or superseded. Issued as part of the SEC’s ongoing disclosure effectiveness initiative, the final rule is effective on November 5, 2018 (30 days after its publication in the Federal Register).

Noteworthy changes for SEC clients are:

The following is a summary of SEC and PCAOB developments since our meeting in July 2018. 

  • Changes in stockholders’ equity for interim periods – the rule extends to interim periods the annual disclosure requirements of presenting (1) changes in stockholders’ equity, and (2) the amount of dividends per share for each class of shares.  An analysis of changes in stockholders’ equity will now be required for the current and comparative year-to-date interim periods;

  • Dividend disclosures – the rule deletes the requirement to present dividends per share on the face of the income statement for interim periods and moves the required disclosure to the analysis of changes in stockholders’ equity (discussed above);

  • Segments – the rule eliminates certain Regulation S-K requirements to disclose segment financial information, restate prior periods when reportable segments change, and discuss that interim segment performance may not be indicative of current or future operations.  The change was made because the guidance in U.S. GAAP and Regulation S-K on MD&A of interim periods require similar disclosures;

  • Geographical areas – the rule eliminates certain requirements to disclose financial information by geographical area in the Description of Business section of a filing.  This change was made to eliminate disclosures that are duplicative of those required under U.S. GAAP.  However, the rule also amends Regulation S-K item 303(a) on MD&A to add an explicit reference to “geographic areas.”

  • Market price information – a registrant will only need to disclosure the ticker symbol of its common equity instead of the high and low trading prices of common stock for specified quarterly periods. 

Implementation note: SEC issued an interpretation clarifying that the staff would not object if the filer’s first presentation of the changes in shareholders’ equity in included in its Form 10-Q for the quarter that begins after the effective date of the implementation.  For example, a December 31, 2017 year-end filer could omit the disclosure from its September 30, 2018 Form 10-Q.  Likewise, a June 30 fiscal year-end filer could omit the disclosure from its September 30, 2018 and December 31, 2018 Form 10-Q.

Link to SEC release No. 33-10532 on SEC website:

Link to SEC interpretive response regarding timing of implementation (question 105.09):


3.     SEC Suspends Former BDO Accountants for Improperly “Predating” Audit Work Papers

Issued: October 12, 2018


The SEC suspended two former BDO USA LLP partners and a former senior manager for improper professional conduct during an audit of a publicly traded insurance company.  BDO fell behind schedule while conducting an integrated audit of the issuer, and ultimately failed to complete necessary audit procedures before the annual report filing deadline with the SEC.  To create the appearance that BDO’s audit was in fact complete, the senior manager on the engagement instructed the audit team to sign off on all work papers and audit programs regardless of whether the work was finished.  He further instructed the audit team to loan and sign blank or placeholder work papers in BDO’s electronic files.  After the filing of the issuer’s annual report, the audit team finished its necessary audit procedures and preserved the predated sign-off’s. 

The following is a summary of SEC and PCAOB developments since our meeting in July 2018.

BDO was required by the SEC to produce an earlier snapshot of its work papers from the period when the “predated” documents were in place.  The SEC identified the audit deficiencies and predated work papers by comparing BDO’s final archived work papers to the snapshot of the work papers as they existed at the time that BDO released its audit report.

The SEC’s order found that the three individuals violated the PCAOB auditing standards and engaged in improper professional conduct.  All were suspended from appearing and practicing before the SEC as accountants, which includes not participating in the financial reporting or audits of public companies, with the right to apply for reinstatement after five years (senior manager), three years (engagement partner), and one year (concurring partner).

Link to SEC order on SEC website: