Group of broker dealers in an office preparing for their broker dealer audit


Broker dealer audits are necessary to protect investors and maintain the integrity of the securities industry. A broker dealer audit is a comprehensive examination of a broker dealer firm’s financial and operational controls. The audit involves multiple actors and entities, each with an essential role. This article highlights the key roles in a broker dealer audit.


Third-party Auditor

Independent third-party broker dealer auditors play a vital role in the broker dealer audit process. The auditor’s report helps ensure that the firm is in compliance with financial and operational regulations. However, the certified public accountant for a broker dealer audit must meet specific qualifications:

  • Independence – The auditor must be independent of the broker dealer. The auditor cannot have any financial or business relationship with the broker dealer, such as bookkeeping or other services related to financial statements.
  • PCAOB (Public Company Accounting Oversight Board) registration – The auditor must be registered with the PCAOB. The PCAOB is a nonprofit organization that oversees the auditors of broker-dealers and public companies.
  • Expertise – The auditor must have knowledge about broker dealer firms and the securities industry. This expertise includes understanding broker dealer financial statements, accounting standards, records, and operational procedures.


Financial and Operations Principal (FINOP)

The FINOP is responsible for the financial and operational controls of the broker dealer. The FINOP must maintain records of the broker-dealer’s transactions, prepare financial statements, and file reports with the SEC and FINRA.


Clearing Broker

A clearing broker is a member of a clearinghouse, an organization that clears and settles trades. The clearing broker is responsible for ensuring that the broker dealer has the necessary funds to complete the transactions. They are responsible for both the purchase and sale of orders, as well as custody of the securities of their clients. The clearing broker must be registered with the SEC and FINRA.


SEC (Securities and Exchange Commission)

The SEC is a federal agency that regulates the securities industry. It oversees broker dealers and audits their financial and operational controls. The SEC also investigates them for violations of securities laws. Most broker dealers are required to register with SEC and join a self-regulatory organization. The goals of the SEC are to protect investors, maintain fair and orderly markets, and facilitate capital formation. 


FINRA (Financial Industry Regulatory Authority)

FINRA is a self-regulatory organization that governs the securities industry. FINRA develops the rules that govern brokers, overseeing more than 3,400 securities firms and approximately 618,000 registered representatives. FINRA also investigates broker dealers for violations of securities laws. In addition, FINRA carries out its own cycle audits of all broker dealers from a financial, operational, and regulatory perspective. 


Next Steps: Your Broker Dealer Audit

As you can see, multiple actors and entities are involved in the audit process. Each of these roles is essential to protecting investors and maintaining the integrity of the securities industry. 

Do you have questions about broker dealer compliance? Contact the audit experts at Assurance Dimensions for more information.