The Financial Industry Regulatory Authority and the Securities and Exchange Commission are stepping up their scrutiny of the accounting and audit process of broker/dealers, reviewing financials more closely and requesting data on a more frequent basis, according to panelists at Wednesday’s New York State Society of CPAs Broker/Dealer Conference.
Gary Purwin, partner with accounting firm Pustorino, Puglisi & Co., said FINRA coordinators are becoming more sophisticated and are reviewing more accounting data of broker/dealers than ever before, said Purwin. Also, regulators are asking for more accounting data on a monthly basis, rather than just on a quarterly basis. For example, he said they’ll call if a b/d doesn’t include such details as a contingency footnote, a type of disclosure.
Marc Stoltz, managing director with JRS Financial Services, said he now gets monthly “routine surveillance calls” from FINRA coordinators. They’ll ask for support for every transaction that appears on a bank statement.
There are also more SEC examinations of audited financials, Purwin said. And the agency now wants its questions answered by the auditors themselves. Extensions for filing audits with the regulators are also harder to come by these days. The regulators are telling themselves, “‘Well, if the larger firms can file on time, we don’t understand why the smaller firms can’t,’” he said. If you don’t file your audit within a certain time period, after several warnings, the SEC might end up sending a letter revoking your license.
With this increased level of sophistication on the part of the regulators, b/ds can’t just bury something deep inside their income statement and expect it to go unnoticed, Stoltz said. Those days are over, and firms need to be more careful about their accounting procedures.