When a broker dealer hears the words “annual audit season”, it can feel like the initial effects of hay fever or pollen season hitting you smack in the face. It is not fun. You may break out in sweats, have night terrors, or worse yet, not have a great understanding of the necessity of an annual audit.
Two of the most important aspects of annual audit season are as follows: having a great financial bookkeeper and having communicative Financial Operations Principal (FINOP). With these two professionals in your corner, your broker dealer should be able to rest easy during this dreaded time.
Each year, every broker dealer is required by the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) to file an annual audit report produced by a Public Company Accounting Oversight Board (PCAOB) registered auditor. A regular Certified Public Accountant (CPA) may not be registered PCAOB auditor, and if your broker dealer’s CPA is a registered PCAOB auditor, they cannot provide the annual PCAOB audit for your broker dealer as your broker dealer’s PCAOB auditor must be completely independent of the firm.
Generally, the PCAOB auditor will begin to ask for various financial data late in the fiscal year so that they can perform some preliminary studies of how the broker dealer operates and how the financials are handled. Most of these items can be retrieved by your broker dealer’s financial bookkeeper. Upon closing of the December financials, PCAOB season starts in earnest. The auditors will ask for a plethora of financial information, contracts, and corporate documents among other items for review and testing. They will dig into the broker dealer’s revenue sources for appropriate due diligence, and confirm that all revenue has been appropriately booked into the financials. This information is based on how the contracts are written with the revenue sources. The PCAOB auditors will study various expenses to ensure that items were booked when incurred and not just received; this is why a knowledgeable financial bookkeeper is of the upmost importance since broker dealers must report all financials on an accrual basis as opposed to a cash basis. If your broker dealer has a professional and knowledgeable financial bookkeeper and FINOP, all of the requests above should be easily accessible and given to the auditors in a quick and timely manner. The quicker a broker dealer provides accurate data to the auditor, the better. This can mean the difference between filing your broker dealer’s annual PCOAB audit in mid-February as opposed to 10 pm on the due date.
The PCAOB auditors will also ask some questions of the board and management, but the bulk of the work can be supplied by the financial bookkeeper and FINOP. If your broker dealer felt the onslaught of “annual audit season” this year like a bad case of hay fever, your firm may want to reconsider its approach to the annual audit. Securities Compliance Management is available to help your broker dealer with your firm’s financial accounting and FINOP needs. Please contact SCM here to schedule a meeting to see how your broker dealer’s next annual audit season can be a smooth and calm season instead of a daily struggle.
