SEC Adoption of Amendments to 17a-5 Article

After waiting a little over two years, the Securities and Exchange Commission (“SEC” or “the Commission”) has FINALLY approved the long awaited amendments to §240.17a-5: Reports to be Made by Certain Brokers and Dealers and § 240.17a-11: Notification Provisions for Brokers and Dealers (otherwise known as Rule 17a-5 and 17a-11).  The final rule has been adopted almost exactly 25 months after the proposal was issued. Both auditors and broker-dealers (“BDs”) alike have been anxiously awaiting the final rules.

There are six ultimate goals of the amendments, according to the final rules, which include items such as: Increase the oversight and focus on “carrying-broker dealers”, simplify and enhance reporting requirements in an effort to increase compliance, enable the PCAOB to exhibit unequivocal oversight on the BDs, and to enhance the Securities Investor Protection Corporation’s (“SIPC”) ability to determine potential BD failures, to name a few.

The most substantial change is that the audits of BDs will be required to be conducted under PCAOB standards as opposed to GAAS (generally accepted auditing standards which are established by the AICPA). As this will have an impact for auditors in regards to audit planning, audit programs, etc. and therefore result in a change to a BD’s audit experience (translation – higher fees), the Commission has allowed for a transition period by making the effective date of issuing audits under PCAOB standards for fiscal years ending on or after June 1, 2014.

Another change effective for fiscal years ending on or after June 1, 2014, is in lieu of filing what was known as a “material inadequacies report”, a carrying broker-dealer will file a compliance report while a non-carrying broker-dealer will file an exemption report, both of which are also to be conducted under PCAOB standards. A BD claiming an exemption from Rule 15c3-3 in its Financial and Operational Combined Uniform Single (FOCUS) Reports during its most recent fiscal year will be filing an exemption report. If during the year the BD encountered exceptions to the exemption, these exceptions are to be described in the report. If no exemption is claimed on the FOCUS report, then a compliance report is to be filed. Both reports require the BD to make statements which then must be examined (reviewed) by the accountant (the PCAOB has issued proposed guidance as to the procedures to be performed by the accountant). The accountant is still not required to opine on the effectiveness of the BD’s internal controls but is required to gain an understanding in order to assess that there are no material modifications required to the BD’s assertions.

Another change to note is that annual reports (audited financial statements) will also be required to be submitted to SIPC if a BD is a member firm.  At this time there will be no change to the format of the “Independent Accountant’s Report on Applying Agreed-Upon Procedures Related to an Entity’s SIPC Assessment Reconciliation.” However, the Commission did provide SIPC the authority to change the format of the reporting requirements, subject to the Commission’s approval.  As a result of these aforementioned items, SIPC will have an enhanced ability to assess the financial stability of BDs.

The aforementioned discussion covers the key amendments approved by the Commission revising Rule17a-5 and 17a-11.  Please share your thoughts with us on Twitter @WithumCPA and on LinkedIn at WS+B Financial Services and stay tuned for further WS+B bulletins which will cover specific amendments in further detail. For questions you might have regarding this update, do not hesitate to reach out to your WS+B contact.

The complete rule can be found at

Authored by:

Jessica Offer, CPA, Manager

Donna Nevolo, CPA, Senior Manager


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