As a broker dealer registered with the Financial Industry Regulatory Authority and the Securities and Exchange Commission, you’re required to have an annual audit of your financial statement. This routine examination might feel like a burden, but you can make broker dealer audits easier for you and your auditors by following the tips below.
Train your internal teams
Ensure that your teams in charge of financial reporting, internal accounting, and compliance are trained on current industry rules, regulations, and Generally Accepted Accounting Principles (GAAP). Proper internal knowledge is important because the independence rules don’t allow you to rely on auditors to make management decisions. Likewise, auditors can’t assist you with the preparation of financial statements and footnotes.
Monitor your internal control systems
Document your system controls and accounting processes. Notify your broker dealer auditor of any changes and keep them updated on written documents. It’s important to keep your auditor updated throughout the year on all changes, so you both can prepare for a smooth broker dealer audit.
Keep supporting documents according to standard criteria
The most heavily tested audit area is revenue. To prepare your team for the revenue audit, you need to keep supporting documentation under the revenue recognition standard criteria below (ASC 606):
- Identify the contract with a customer
- Identify the performance obligations in the contract
- Determine the transaction price
- Allocate the transaction price among performance obligations
- Determine appropriate time to recognize revenue (over time or at a point in time)
It’s important to keep documentation relating to contractual revenue agreements, fee and commission schedules, and reconciliations. Your team should prepare supporting documentation for all decisions affecting revenue.
Additionally, your auditor should be made aware of new revenue streams, transactions, and contractual agreements. Notify them of business changes by providing them with updated organization charts and lists of key management, board members, and audit committee members.
Make related-party transactions readily identifiable
Set up control systems specific to the approval, recording, and reporting of related-party dealings. Ensure your expense sharing is current and recorded on time.
Update fair value estimates
Reassess your approaches to the valuation of marketable and non-marketable securities, and provide your broker dealer auditor with the valuation calculations. Don’t forget to include supporting documents for all inputs.
Maintain a log of correspondence with industry regulators
Supply your broker dealer auditor with correspondence related to consultations, and communications with compliance consultants and regulators. You must be compliant with exemption provisions and net capital requirements for the entire fiscal year.
Securing a positive broker dealer audit experience
Ensuring efficient collaboration with your auditor doesn’t undermine auditor independence. You can talk to your auditor about the implementation of these tips. This will help them minimize disruption to your business operations during the audit.
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