Monday, May 23, 2016

Tips to Reduce Audit and Examination Costs for BD's and RIA's

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 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 

Read more about Audit Preparation Support Services available from RND Resources Inc.

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