Financial brokerages like to back up their self-images of rock-like strength and probity with audited results — but that might not mean very much. Regulators reviewing 23 audits of broker-dealers — the firms that trade securities on behalf of both investors and themselves — found that every audit failed to meet federal standards aimed at maintaining independence between brokerage firms and those checking their books. In the two starkest cases, auditors actually helped prepare the financial documents they were reviewing, according to the report of the federal Public Company Accounting Oversight Board. Other deficiencies included auditors failing to look into risks of fraud and not testing the accuracy of firms’ revenue filings.
Allowing broker-dealers to go without real audits may have serious consequences. In two cases separate from the federal review, lax auditing allowed now-defunct firms MF Global Holdings and Peregrine Financial Group to lose track of millions of their clients’ dollars, according to federal investigators.