Broker dealers registered with The Financial Industry Regulatory Authority and the Securities and Exchange Commission (SEC) are required to have an annual financial statement audit. Broker dealers with this requirement must use an accounting firm registered with the Public Company Accounting Oversight Board (PCAOB) and have an audit under the standards set by the PCAOB.

Below are some valuable tips to help you have positive broker dealer audit experience.

Your Internal Team Should be Trained

You need to ensure that your financial reporting, internal accounting, and compliance team are up-to-date on industry rules, regulations and generally accepted accounting principles (GAAP). You also need to have proper internal knowledge because auditor independence rules bar reliance on auditors for making management decisions; as well as, acting within the broker-dealer’s internal control system. This includes assisting with financial statement and footnote preparation.

Monitor Your Company’s Internal Control Systems

Make sure you have the proper controls over your systems and accounting processes and document them. Notify your auditor of any changes in internal controls, in addition to providing updates to written documents as they occur.

Supporting Documents

You need to keep contractual revenue agreements, fee and commission schedules, as well as reconciliations. Prepare documentation supporting any decisions and estimates affecting revenue recognition.

In addition to revenue contracts, make your auditor aware of new revenue streams, new transactions, and new contractual agreements.

Notify your auditor of business changes and provide them with an updated organization chart, list of related parties, list of key management, board members, and audit committee members.

Set up control systems specific to the approval, recording, and reporting of related-party dealings.  Ensure up-to-date expense sharing and record these related expenses on time.

Update Fair Value Estimates

Reassess valuation approaches and assumptions adopted for both marketable and non-marketable securities. Provide your broker dealer auditor with the valuation calculations, including supporting documents for all valuation inputs.

Ensure Financial Statement Presentation and Disclosure is Up-to-Date

Assess the necessity of additional disclosures occasioned by operational changes or changes in GAAP requirements, which relate to your broker dealer business. You can look at example financial statements of other broker dealers online on the SEC filing system.

Maintain a Log of All Your Correspondence with Industry Regulators and Monitor Compliance

Supply your broker dealer auditor with correspondence related to your consultations and communications with compliance consultants and regulators. Make sure you are compliant with exemption provisions and net capital requirements throughout the entire fiscal year.

Always be Prepared Before an Audit

Here’s what to keep in mind during an audit:

  • Ensure everything needed for the audit is ready ahead of time.
  • Make it easy for your auditors to find what they are looking for.
  • Predict the auditor’s questions and have relevant explanations ready.


Ensuring maximum teamwork and collaboration with your auditor in a bid to execute an efficient audit will not undermine independence. Talk to your auditor with regard to the implementation of these tips. They will work to minimize the chances of your business being disrupted during the audit process.

This article originally appeared on Ernst Wintter & Associates’ blog.