Financial Reporting
What the exam tests
Financial reporting for a broker-dealer centers on Rule 17a-5 and the FOCUS report. You must know which report a firm files, when, and what triggers a notification to FINRA.
Filing map
- Part II (monthly, within 20 business days after month-end) - carrying/clearing firms; includes the statement of financial condition, income statement, net capital computation, and customer reserve computation.
- Part IIA (quarterly, within 17 business days after quarter-end) - introducing firms that do not carry customer accounts.
- Annual audited financial statements (within 60 calendar days of fiscal year-end) - audited by an independent CPA, including net capital and reserve computations and a report on material inadequacies in accounting controls. The SIPC report accompanies the annual audit.
Early warning (Rule 17a-11)
Notify FINRA promptly if net capital falls below 120% of the minimum requirement, if aggregate indebtedness exceeds 1200% of net capital, or if the firm cannot make the required computation. Falling below 100% of the minimum requires immediate notice and cessation of business.
Traps
Questions mix up 20 business days (monthly) with 17 business days (quarterly) and 60 calendar days (annual audit). FOCUS Part II is not Part IIA. An "audited" report is not the monthly filing. Do not confuse the annual audit deadline with tax deadlines.
Rule of thumb
Monthly = 20 business days; quarterly = 17 business days; annual audited = 60 calendar days. If you see "120%," think early-warning notice, not a deficiency.