PCAOB Flags Ongoing Broker-Dealer Audit Deficiencies

 “The definition of insanity is doing the same thing over and over and expecting different results.” – attributed to Albert Einstein

Another year, another round of eyebrow-raising audit findings. On June 13, 2025, the PCAOB released its 10th annual report on broker-dealer audits, and the message was loud and clear: deficiency rates remain stubbornly high, especially among smaller firms. In 2024, the PCAOB inspected 60 firms and reviewed 102 broker-dealer audits—76% of which had at least one deficiency, up from 70% in 2023 and 58% in 2022. The issues weren’t limited to unknown players, either. Of the 31 audit engagements handled by large firms (those auditing over 100 broker-dealers and 100 issuers), 13—or 42%—had deficiencies. But the bulk of the trouble came from the remaining firms, with 77% of their audits showing problems, compared to 70% the year before. These deficiencies largely stemmed from poor revenue testing, inadequate journal entry procedures, and failures to ensure GAAP-compliant financial disclosures, highlighting ongoing gaps in risk response, fraud detection, and accounting accuracy.

This table outlines the inspection firm selections and engagement reviews conducted during the last three annual cycles.

Source: PCAOB

Same Story, Different Year: The Slipping Audits  

So, what’s driving these persistent problems? The PCAOB found that some firms still aren’t doing enough homework on the basics:

• Revenue Testing: 48% of audits bungled procedures tied to revenue, either missing performance obligation testing, misclassifying income, or ignoring ASC 606 guidance altogether.
• Journal Entries: Nearly 1 in 5 audits (18%) failed to properly test journal entries for fraud indicators—some didn’t even select entries for review. That’s a major oversight, especially when journal testing is one of the first lines of defense against financial misstatements. To stay sharp and avoid such pitfalls, take a closer look at our article The PCAOB Guide to Detecting Fraud in Journal Entries—it breaks down exactly what to watch for and how to tighten up your procedures.
• Discrepancies in GAAP: 16% of auditors failed to assess whether the financials were fairly presented under GAAP. Yikes.

Deficiencies also crept up in supplemental information work related to net capital and customer protection. Around 41% of engagements had flaws in Customer Protection Rule testing, up from 30% in 2023. But here’s the real head-scratcher: even with clear PCAOB reminders and resources, firms continue to flub documentation, ignore quality control standards, and roll out the same subpar playbooks year after year. You’d think after ten years, we’d be past rookie mistakes.

Check the Work, Not Just the Boxes

Staff emphasized that some firms simply aren't adapting to newer standards or revisiting old habits. For example, many still don’t sufficiently test broker-dealer controls related to customer fund segregation or net capital computations—even when those areas are high risk. Some firms skipped confirming whether bank accounts used for customer reserves met the rules or whether deficiencies in controls were properly reported.

Here’s what the staff says needs to change:

• Get Real About Risk: Firms should better tailor risk assessments, especially when dealing with related party transactions, revenue streams, or broker-dealers handling digital assets.
• Tune Up Quality Control: 58% of firms had quality control deficiencies, particularly in engagement performance and review supervision. The PCAOB has a new QC standard (QC 1000) going live in December 2025—time to sharpen those pencils.
• Meet the Deadline, or Don’t Bother: Documentation delays were called out again, even as AS 1215 now tightens the window to 14 days for certain firms starting this year.
• Communicate Like You Mean It: From audit committees to management, missed communication requirements remain a sore spot, particularly around fraud risk and related party disclosures.

The PCAOB isn’t just throwing shade—it’s offering concrete reminders and highlighting examples of what not to do. Yet too many firms are treating the inspection report like a suggested reading list rather than a professional mandate.

The Bottom Line

Here’s the kicker: these audits matter. Broker-dealers aren’t just Wall Street big shots—they also serve everyday investors. That means sloppy audit work can have real consequences when customer funds are involved. If you're in audit, tax, or finance and advising broker-dealer clients, it’s time to ask tough questions: Is your audit firm equipped for PCAOB scrutiny? Are internal controls being tested with rigor, or just rubber-stamped? And is your documentation airtight… or Swiss cheese? As the PCAOB enters Year 11 of this program, one thing is crystal clear: good enough just doesn’t cut it anymore. And for those still lagging, this year’s message is loud and clear—shape up or brace for more heat in next year’s review. For professionals in accounting, audit, or compliance, this isn’t just bedtime reading—it’s a wake-up call. Don’t be the firm that ends up as a cautionary tale in next year’s report. Want smarter news, faster? Sign up for our expert-packed newsletter.