How Broker-Dealer and RIA firms can reduce the cost of Audits and Examinations
Mid-sized broker dealers struggle to stay on top of audit
preparation work. Even with today’s automated accounting technology and
regulatory software; compiling data and records for audits is a time consuming
task that large companies assign to a task force who monitor audit capabilities
year round. Some firms try to save costs
by preparing audit records themselves, but wind up paying more in the end. They’re
charged higher audit fees as a result of poorly organized records, incomplete
information, and misunderstanding of the auditors’ role. Once the auditor has
received the records, it can be anyone’s guess how they will be interpreted and
what additional questions may be required.
Firms can benefit from a significant cost savings by outsourcing the
audit preparation work to experienced pro’s.
Minimize Risk of Negative Audit Results and Keep Audit Costs Down
An important component in minimizing the risk of negative
audit results is to first understand what the role of the auditor is. The
auditor is engaged to “render an opinion on whether a company’s financial
statements are presented fairly, in all material respects, in accordance with
financial reporting”. Firms that don’t recognize this often make the mistake of
providing poorly documented information, assuming the auditor will straighten
everything out on the go. This costly assumption leaves firms paying hourly
audit rates for the auditors staff to properly organize the records before they
start on the audit itself. Having the
auditor spend time organizing your records can add up fast.
To form an audit opinion, the auditor “gathers records,
observes, tests, compares, and confirms accuracy of data and processes”. Then “the
auditor forms an opinion of whether the financial statements are free of
material misstatements and if fraud or error exists”. In analyzing records the
auditor does not reconcile the accounts and financial statements, but makes a
judgment on how well the company has reconciled its financial statements and
accounts. The auditor does not prepare
footnotes or financial statement disclosures, but will assess what the company
accountant has included in footnotes. The auditor does not maintain records,
establish values, locate records, or prepare the entity for the audit. These
responsibilities rest solely on the firm being audited. Further, the auditor
does not make a recommendation for corrective action plans, rather they
identify if corrective action measures should be taken.
A clear picture of what the auditor does and doesn’t do can
be found in the PCAOB.org Ethics and Independence Rules for Auditors. The
mainstay of auditor independence is that auditors do not take responsibility
for records and financial statements on which they form an audit opinion.
Responsibility for the financial statements and records lies squarely on the
shoulders of the company being audited.
For more tips register for the June 2016 #LosAngeles
#compliance and #riskmanagement roundtable meeting. The roundtable discussion
meeting is sponsored by RND Resources Inc, compliance, audit, and regulatory
support services firm located in Woodland Hills California. RND Resources has
been serving broker-dealers and registered investment advisors for over 30
years with audit preparation services and regulatory support. RND Resources
also provides regulatory compliance consulting & support for #fintech firms.
The secondary topic we’ll be discussing at
the meeting is best practice for reviewing #cybersecurity along with system
testing and penetration testing technology.
Sign up on our website at www.finracompliance.com
Read more about Audit Preparation Support Services available
from RND Resources Inc.
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