The PCAOB has spoken – and the numbers aren’t pretty.

In its 2024 Annual Report and Supplementary Information on Broker-Dealer Audits, the Public Company Accounting Oversight Board revealed that 76% of broker-dealer audits inspected last year had at least one deficiency.

Yes, you read that right – more than three out of every four audits reviewed failed to meet the standards.

But here’s the real kicker: for some segments of the market, the failure rate was even higher. Smaller firms, first-time inspections, and firms with low broker-dealer volumes struggled the most – a reality that has big implications for how audits are resourced and delivered in 2025 and beyond.

This article breaks down the numbers, explores where firms are slipping, and explains why the PCAOB’s findings make such a strong case for smarter, capacity-driven audit delivery models like CapacityHive.

The 2024 Inspection Landscape: What the PCAOB Looked At

The PCAOB inspected 60 audit firms and reviewed 102 broker-dealer audits covering financial periods between April 1, 2023, and March 31, 2024.

The selection wasn’t random – 94% of engagements were chosen based on risk factors, such as whether the broker-dealer carried customer assets, engaged in complex transactions, or had a history of deficiencies. Only 6% were picked randomly.

The reviews covered:

• Financial statement audits (revenue, related party transactions, going concern, etc.)
• Regulatory compliance audits under the Net Capital Rule and Customer Protection Rule
• Attestation engagements – examinations of compliance reports and reviews of exemption reports

The Headline Numbers: Deficiency Rates That Won’t Budge

Overall deficiencies:

• 76% of audits had at least one deficiency (up from 70% in 2023 and 58% in 2022)
• 23% had deficiencies in financial statement & regulatory areas
• 9% had deficiencies in other audit areas (communications, documentation, etc.) 

By engagement type:

• Examination engagements (compliance reports): 59% deficiencies
• Review engagements (exemption reports): 42% deficiencies …

By firm size:

• Firms auditing 1–20 broker-dealers: 89% deficiencies
• Firms auditing 100+ broker-dealers: 57% deficiencies
• Largest firms (100+ broker-dealers and 100+ issuers): 52% deficiencies2024-broker-dealer-supp…

By inspection history:

• First-time inspections in 2024: 93% deficiencies
• Largest annually inspected firms: 52% deficiencies2024-broker-dealer-supp…

The message is clear – experience, infrastructure, and capacity matter.

Where Firms Are Falling Down: Top Deficiency Areas

1️⃣ Revenue (48% deficiency rate) …

Problems included:

• Not testing whether recorded revenues were accurate or performance obligations met
• Failing to disaggregate revenue streams as required by ASC 606
• Using information from service organisations without testing its accuracy

CapacityHive angle: Deploying ASC 606-trained specialists for targeted revenue audit work dramatically reduces this risk.

2️⃣ Regulatory Compliance – Customer Protection Rule (41%) & Net

      Capital Rule (25%)

Failures included:

• Incomplete customer reserve computations
• Inaccurate allowable asset classifications
• Missing reconciliation of special reserve accounts

CapacityHive angle: Regulatory-focused teams can handle these computations with precision, freeing core teams to focus on other complex areas.

3️⃣ Audit Documentation (11%)

Late or incomplete workpaper archiving, missing evidence, and retention gaps were common.

CapacityHive angle: Automated workflow systems and centralised QC review help ensure PCAOB-ready files before inspection.

4️⃣ Journal Entry Testing (18%)

Some firms didn’t perform completeness checks or ignored fraud risk indicators in journal entries.

CapacityHive angle: Dedicated audit analytics teams can run data-driven journal entry testing at scale.

Why This Matters Beyond PCAOB Findings

These deficiencies aren’t just bad news for inspection scores – they carry real regulatory and reputational consequences:

• SEC and FINRA follow-ups if audit failures relate to investor protection rules
• Loss of broker-dealer client trust when audit credibility is questioned
• Higher future inspection scrutiny, creating a cycle of pressure and cost

The Capacity Challenge: Smaller Firms at Greater Risk

The PCAOB data shows a stark truth – the fewer broker-dealer audits a firm performs, the higher the likelihood of deficiencies.

This isn’t about competence alone. It’s about resources:

• Smaller teams juggle multiple clients and deadlines, limiting time for deep testing
• Lack of in-house specialists for niche areas like regulatory computations
• Limited bandwidth for robust QC review before report issuance

Capacity constraints don’t just slow things down – they show up in inspection findings.

How CapacityHive Bridges the Gap

CapacityHive is designed to solve the very problems the PCAOB keeps highlighting:

Looking Ahead: A Stricter Regulatory Climate

The PCAOB isn’t slowing down – new and updated standards are on the horizon:

• AS 2310 (Auditor’s Use of Confirmation) – effective for 2025 audits
• AS 1000 (General Responsibilities) – effective Dec 15, 2024
• AS 1215 (Audit Documentation) – tighter deadlines for archiving workpapers

For firms already struggling with high deficiency rates, these changes could widen the gap between those who adapt – and those who fall further behind.

The Bottom Line

The PCAOB’s 2024 broker-dealer audit inspection results are more than just a regulatory report – they’re a warning light.

Three out of four audits aren’t passing muster. The gap between large, well-resourced firms and smaller practices is widening. And the same audit areas – revenue, regulatory compliance, documentation – keep showing up in deficiency lists year after year.

In this environment, capacity isn’t just an operational issue – it’s a quality imperative. Platforms like CapacityHive don’t just provide extra hands; they deliver the specialist expertise, process discipline, and scalability needed to consistently meet PCAOB standards.

If the goal is to reduce deficiencies, pass inspections, and protect clients – it’s time to rethink the audit delivery model.