You are here

Written by: Marissa Scicchitano, CPA
Since August 2011, the Public Company Accounting Oversight Board (“PCAOB”) has been performing inspections of broker-dealer audits under an Interim Inspection Program. Based on Interim Inspection Program results through the PCAOB’s most recent Release No. 2015-006 on August 18, 2015 (the “August 2015 Release”), Wolf & Company is 1 of only 4 firms among 155 firms with no “observations,” defined as audit deficiencies and independence findings.

Below are Ten Valuable Tips to help your audit meet the scrutiny of regulators, minimizing the likelihood of disruption to your business related to financial statements and related compliance reporting issues.  

#1: Train your internal team
Is your internal accounting, financial reporting and compliance team up to date on SEC Rules and Regulations? Do you have appropriate internal knowledge or otherwise engage outside experts to meet financial reporting requirements? Auditor independence rules prohibit reliance on the auditor for making management decisions and acting within the broker-dealer’s system of internal control. 

#2: Review auditor independence requirements
In addition to the broader independence prohibitions mentioned above, your auditor cannot perform bookkeeping services, prepare or record journal entries, or prepare or assemble financial statements and supporting schedules.

#3: Ensure compliance with net capital calculation guidelines
Review haircut requirements as the makeup of your cash and proprietary investment accounts change. Also review for non-allowable assets to be deducted from the net capital calculation as prescribed in Rule 15c3-1.

#4: Monitor effectiveness of internal controls over aggregate indebtedness and net capital computations
Internal controls over compliance with minimum net capital requirements and aggregate indebtedness must be designed and operating effectively throughout the year. Standardize and document your procedures and controls. Inform your auditor of changes and provide updates to written documentation as they occur. 

#5: Update fair value estimates
Re-evaluate valuation methods and assumptions used for marketable and non-marketable securities. Provide valuation calculations to your auditors, including supporting documentation for all valuation inputs.

#6: Make sure related party transactions are readily identifiable
Design controls specific to the authorization, recording and reporting of related party transactions. Keep a log of such transactions, if otherwise not easily retrievable from your ledger system. Update Expense Sharing Arrangements (“ESA”) at least annually and record charges subject to ESA in a timely manner.

#7: Gather supporting documentation
Revenue recognition was the area with the greatest number of audit deficiencies in the August 2015 Release. Maintain contractual revenue agreements, reconciliations, and fee and commission schedules. Prepare documentation that supports any judgments and estimates impacting revenue recognition. 

#8: Update financial statement presentation and disclosure
Review the need for additional disclosures resulting from changes in operations or changes in GAAP requirements that relate to your broker-dealer. You can access other broker-dealer financial statements on the web through EDGAR to review annual audit filings of other registered broker-dealers.

#9: Monitor compliance with exemption from the Customer Protection Rule
Ensure that you are in compliance with exemptive provisions throughout the entire fiscal year. For further detail on requirements of this provision, see our previous alert located here

#10: Keep a log of all correspondence with FINRA
Provide your auditor with correspondence and phone logs associated with your communications and consultations with regulators and compliance consultants. 

Maximizing collaboration and teamwork with your auditors in the execution of an efficient and effective audit will not impair independence. Communicate with your auditor regarding the implementation of these Ten Valuable Tips. 

Download a PDF



Do you have any questions for Wolf & Company?
If you have any questions regarding your broker-dealer audit, please do not hesitate to contact Margery L. Piercey, CPA, CGMA, at 617-428-5422 or or Matthew C. Vaughn, CPA, at 617-933-3352 or