Accounting Guide

Book description

It is critical to understand the complexities of the specialized accounting and regulatory requirements needed for the broker-dealer industry. This comprehensive guide has been designed to be beneficial for a wide range of professionals within the broker-dealer industry. Updates to this edition are to conform the content to current accounting standards and regulatory requirements. The updates include:

  • SEC Release No. 34-86073, Amendment to Single Issuer Exemption for Broker-Dealers;  
  • ASU No. 2018-09, Codification Improvements; and,
  • SEC Release Nos. 33-10532; 34-83875; IC-33203, Disclosure Update and Simplification.

In addition, this edition features a new example disclosure note for revenue from contracts with customers, which has been added to the guide's illustrative financial statements and footnote disclosures.

Table of contents

    1. 1    The Securities Industry
      1. Broker-Dealers
        1. Discount Brokers
        2. Investment Bankers
        3. Government Securities Dealers
        4. Designated Market Maker
        5. Clearing Brokers
        6. Carrying Brokers
        7. Prime Brokers
        8. Swap Dealers
        9. Introducing Brokers
        10. Brokers' Brokers
        11. Bank-Owned Brokers (Section 4k4(e) and Section 20 Brokers)
        12. Independent Broker-Dealers
      2. The Financial Markets
        1. Exchange Market
        2. OTC Market
        3. Third Market
        4. Alternative Trading Venues
      3. Clearing Organizations and Depositories
      4. Transfer Agents
      5. Regulatory Overview
      6. Business Activities
        1. Brokerage
        2. Firm Trading
        3. Investment Banking
        4. Financing
        5. Other Activities
    2. 2    Broker-Dealer Functions, Books, and Records
      1. Introduction
        1. Overview
        2. Original Entry Journals
        3. General Ledger
        4. Stock Record
        5. Regulatory Recordkeeping Requirements
        6. Trade Date and Settlement Date
      2. Trade Execution
        1. Customer Trades
        2. Proprietary Trades
      3. Clearance and Settlement
        1. Overview
        2. Comparison
        3. Settlement
        4. Bookkeeping
      4. Specialized Clearance Activities
        1. Mortgage-Backed Securities
        2. Government Securities
        3. Repos and Reverse Repos
        4. Derivative Securities
        5. Commodity Futures and Options on Futures
        6. Forward Transactions
        7. Municipal Securities
        8. International Securities
        9. Options on Securities
      5. Reconciliation and Balancing
      6. Custody
        1. Possession or Control
        2. Securities Transfer
      7. Dividends, Interest, and Reorganization
        1. Dividends and Interest
        2. Reorganization
      8. Collateralized Financing
        1. Stock Loan and Stock Borrow
        2. Bank Loan Financing
        3. Reverse Repos and Repos
      9. Regulatory Considerations
      10. Tax Information Reporting for Certain Customer Transactions
      11. Illustrative Stock Record Entries
    3. 3    Regulatory Considerations
      1. Applicable Rules
        1. Interpretations of Rules
      2. Explanation of Significant SEC Financial Responsibility Rules
        1. SEC Rule 15c3-3, “Customer Protection—Reserves and Custody of Securities”
        2. SEC Rule 15c3-1, “Net Capital Requirements for Brokers or Dealers”
        3. SEC Rule 15c3-1(e), “Notice Provisions Relating to the Limitations on the Withdrawal of Equity Capital”
        4. SEC Rule 17a-13, “Quarterly Security Counts to Be Made by Certain Exchange Members, Brokers, and Dealers”
        5. SEC Rule 17a-3, “Records to Be Made by Certain Exchange Members, Brokers, and Dealers”
        6. SEC Rule 17a-4, “Records to Be Preserved by Certain Exchange Members, Brokers, and Dealers”
        7. Regulation T and Maintenance Margin
        8. Account Statement Rule(s)
        9. SEC Rules and CFTC Regulations Governing Customer Margin for Transactions in Security Futures
        10. SEC Rules 17h-1T and 17h-2T
        11. SEC Rule 17Ad-17, "Lost Securityholders and Unresponsive Payees"
        12. SEC Rule 17Ad-22, “Clearing Agency Standards”
        13. SEC Rule 17-248—Subpart C, "Regulation S-ID: Identity Theft Red Flags"
        14. SEC Rule 506 of Regulation D and SEC Rule 144A
        15. SEC Rule 15c3-5, “Risk Management Controls for Brokers or Dealers with Market Access”
        16. SEC Rule 17a-5, “Reports to Be Made by Certain Brokers and Dealers”
        17. Anti-money Laundering Regulations
      3. Reporting Requirements
        1. Consolidation of Subsidiaries
        2. Form Custody
        3. Other Periodic Reporting
        4. The Annual Audited Financial Report
      4. Filings Concurrent With the Annual Audited Financial Report
        1. Compliance or Exemption Report Required by SEC Rule 17a-5
        2. Report to State Regulatory Agencies
        3. Financial Statements to Be Furnished to Customers of Securities Broker-Dealers
      5. Other Reports
        1. Reports on Securities Investor Protection Corporation Assessment
        2. Reports on Agreed-Upon Procedures for Distributions
        3. PCAOB Accounting Support Fee
      6. Additional Requirements for Registered Investment Advisers
      7. Rules Applicable to Broker-Dealers in Commodities and U.S. Government Securities
        1. Commodities Brokers
        2. Government Securities Broker-Dealers
      8. OTC Derivatives Dealers
      9. Swap Dealers and Swaps Marketplace Participants
      10. Annual Compliance Certification
    4. 4    Internal Control
      1. Introduction
      2. The Control Environment
      3. Risk Assessment
      4. Control Activities
      5. Information and Communication
        1. Information and Communication Control Activities
      6. Monitoring Activities
      7. Broker-Dealer Control and Monitoring Activities
        1. Sales and Compliance
        2. Clearance
        3. Securities Settlement
        4. Custody
        5. Dividends, Interest, and Reorganization
        6. To-Be-Announced Securities
        7. Principal Transactions
        8. OTC Derivative Transactions
        9. Commissions
        10. Collateralized Financings
        11. Period End Financial Reporting
      8. SEC Requirements for Management’s Report on Internal Control Over Financial Reporting for Issuers
        1. Annual Reporting Requirements for Issuers
        2. Quarterly Reporting Requirements for Issuers
    5. 5    Accounting Standards
      1. Accounting Model
        1. Definition of Fair Value
        2. Application of Fair Value Measurement to Liabilities and Instruments Classified in a Reporting Entity’s Shareholders’ Equity
        3. Valuation Techniques
        4. Inputs to Valuation Techniques
        5. Application to Financial Assets and Financial Liabilities With Offsetting Positions in Market Risks or Counterparty Credit Risk
        6. Inputs Based on Bid and Ask Prices
        7. Present Value Techniques
        8. The Fair Value Hierarchy
        9. Fair Value Measurements of Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)
        10. Fair Value Determination When the Volume or Level of Activity Has Significantly Decreased
        11. Fair Value Option
      2. Additional Fair Value Considerations
        1. Financial Instruments Listed on a Recognized Exchange
        2. Financial Instruments Not Listed on a Recognized Exchange but Having a Readily Available Market Price
        3. Financial Instruments Not Having a Readily Available Market Price
      3. Trade-Date Versus Settlement-Date Accounting
        1. Proprietary and Principal Transactions
        2. Agency Transactions
      4. Statement of Financial Condition Considerations
        1. Due From, and Due to, Other Broker-Dealers and Clearing Entities
        2. Transfers of Financial Assets
        3. Exchange Memberships Owned or Contributed
        4. Suspense Accounts
        5. Derivatives
        6. Conditional Transactions
        7. Leveraged Buyouts and Bridge Loans
        8. Asset Securitizations
        9. Variable Interest Entities
        10. Soft-Dollar Arrangements
        11. Mandatorily Redeemable Instruments
      5. Statement of Income or Loss Considerations
        1. Underwriting Revenues and Expenses
        2. Distribution Costs
        3. Interest, Dividends, and Rebates
        4. Costs Associated With Exit or Disposal Activities
      6. Revenue Recognition: Application of FASB ASC 606
        1. Brokers, Dealers, and Futures Commission Merchants and the Definition of a Public Business Entity
    6. 6    Financial Statement Presentation and Classification
      1. Introduction
      2. Financial Statements
        1. Statement of Financial Condition
        2. Statement of Income, Comprehensive Income or Operations
        3. Statement of Cash Flows
        4. Statement of Changes in Ownership Equity
        5. Statement of Changes in Subordinated Borrowings
        6. Consolidation of Subsidiaries
        7. Going Concern
      3. Supplementary Schedules
        1. Computation of Net Capital Pursuant to SEC Rule 15c3-1
        2. Computations for Determination of Reserve Requirements Pursuant to SEC Rule 15c3-3
        3. Information Relating to Possession or Control Requirements Under SEC Rule 15c3-3
        4. Schedules of Segregation Requirements and Funds in Segregation for Customers’ Trading Pursuant to the Commodity Exchange Act
      4. Statement of Financial Condition Account Descriptions
        1. Cash and Securities Segregated Under Federal and Other Regulations
        2. Memberships in Exchanges
        3. Securities Sold Under Agreements to Repurchase and Securities Purchased Under Agreements to Resell
        4. Securities Borrowed and Securities Loaned
        5. Securities Received as Collateral and Obligation to Return Securities Received as Collateral
        6. Receivables From and Payables to Broker-Dealers, Clearing Organizations, and Others
        7. Receivables From and Payables to Customers
        8. Deferred Dealer Concessions
        9. Securities Owned and Securities Sold, Not Yet Purchased
        10. Other Borrowed Funds
        11. Subordinated Borrowings
        12. Commitments and Guarantees
        13. Equity
      5. Statement of Income or Operations Account Descriptions
        1. Commission Income and Related Expense
        2. Interest Income and Interest Expense
        3. Dividend Income and Dividend Expense
        4. Principal Transactions (Trading Gains and Losses)
        5. Investment Banking Fees and Expenses
        6. Asset Management and Investment Advisory Income
        7. Distribution Fees
        8. Floor Brokerage, Exchange Fee, and Clearance Expenses
        9. Occupancy and Equipment Expenses
        10. Employee Compensation and Benefits Expenses
        11. Technology and Communications Expense
        12. Management and Allocated Corporate Overhead Expense
      6. Disclosures
        1. Fair Value Disclosures
        2. Disclosures Related to Transfers of Financial Assets Accounted for as Sales
        3. Disclosures Related to Transfers of Financial Assets Accounted for as Secured Borrowings
        4. Disclosures of Certain Significant Risks and Uncertainties and Contingencies
        5. Derivative Instruments Disclosures
        6. Guarantee Disclosures
        7. Related Party Disclosures
        8. Subsequent Events Disclosures
        9. Balance Sheet Offsetting Disclosures
      7. Financial Statements and Schedules
  1. Appendix
    1. A    Information Sources
    2. B    Illustrative Example of Compliance Report Required by SEC Rule 17a-5
    3. C    Illustrative Example of Exemption Report Required by SEC Rule 17a-5
    4. D    The New Leases Standard: FASB ASC 842
    5. E    Accounting for Financial Instruments
    6. F    Schedule of Changes Made to the Text From the Previous Edition
  2. Glossary
  3. End User License Agreement

Product information

  • Title: Accounting Guide
  • Author(s): AICPA
  • Release date: November 2019
  • Publisher(s): Wiley
  • ISBN: 9781948306669