The Public Company Accounting Oversight Board (PCAOB) might finally move to craft a permanent program to inspect auditors of broker-dealers.
The PCAOB gained the authority to inspect auditors of broker-dealers in Section 982 of the Dodd-Frank Act in 2010, and the board has been inspecting them under a temporary program described in 2011 in Release No. 2011-001, Temporary Rule for an Interim Inspection Program for the Audits of Brokers and Dealers.
Since then, the board has been intermittently working on a rule proposal for a permanent program but has continued to experience delays. It is unclear exactly what the hold-up has been during previous leaderships, though there have been difficulties in figuring out the best way to shape the program.
Now, Securities and Exchange Commission (SEC) Chief Accountant Kurt Hohl wants the PCAOB to act. The SEC has oversight authority over the audit regulatory board.
“One of the things that we’ve asked the PCAOB to do is finalize their broker-dealer inspection program, so it’s no longer an interim but a finalized program,” Hohl said at the SEC Speaks 2026 conference hosted by the Practising Law Institute on March 20 in Washington.
Hohl did not provide details and did not take any questions from reporters after his panel discussion.
Congress established the inspection program to lessen the risk of a repeat of the Bernard Madoff Ponzi scheme, in which the outside accountant never bothered to verify that the assets reported on client statements were being managed by Madoff’s investment company. But Dodd-Frank left the scope of the inspection program and the frequency of inspections to the PCAOB’s discretion. The audit regulator is also free to differentiate among categories of broker-dealers and to determine whether to exempt some auditors from inspections.
In terms of setting up a permanent inspection program, a delay occurred about eight years ago when the PCAOB was monitoring whether Congress would pass a bill that would exempt audits of small broker-dealers.
H.R. 6021 and S. 3004, the Small Business Audit Correction Act, introduced in 2018, would amend the Sarbanes-Oxley Act of 2002 to exempt privately held broker-dealers who do not handle client funds from hiring a PCAOB-registered audit firm as part of their annual reporting requirements. To qualify for the exemption, brokerage firms must have fewer than 150 brokers.
The proposed legislation did not pass.
Some financial professionals and smaller brokerage firms have criticized the temporary inspection program because it includes all classes of broker-dealers. In their view, smaller audit firms cannot afford the cost of the inspection process. However, investor protection advocates believe a scaled approach will put investors at risk.
While the PCAOB has been using a temporary inspection program, its leaders have told Thomson Reuters over the years that the interim program does not have a sunset, thus it will not stop. And they said that the interim program has been running well.
In the meantime, as the PCAOB works on a proposal to establish a permanent program, it is likely that board member George Botic will play an important role, as he headed the Division of Registration and Inspections before being named to the board in 2023.
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