Title Details

Founded in 1887, the American Institute of Certified Public Accountants (AICPA) represents the CPA and accounting profession nationally and globally regarding rule-making and standard-setting, and serves as an advocate before legislative bodies, public interest groups and other professional organizations. The AICPA develops standards for audits of private companies and other services by CPAs; provides educational guidance materials to its members; develops and grades the Uniform CPA Examination; and monitors and enforces compliance with the accounting profession's technical and ethical standards.
The AICPA's founding established accountancy as a profession distinguished by rigorous educational requirements, high professional standards, a strict code of professional ethics, a licensing status and a commitment to serving the public interest.

Table of Contents ix

Chapter Paragraph

1 The Securities Industry  01-144

Broker-Dealers 04-25

Discount Brokers 08

Investment Bankers 09-14

Government Securities Dealers 15

Designated Market Maker 16

Clearing Brokers 17

Carrying Brokers 18

Prime Brokers 19

Swap Dealers 20-21

Introducing Brokers 22

Brokers’ Brokers 23

Bank-Owned Brokers (Section 4k4(e) and Section 20

Brokers) 24

Independent Broker-Dealers 25

The Financial Markets 26-46

Exchange Market 29-34

OTC Market 35-39

Third Market 40

Alternative Trading Venues 41-46

Clearing Organizations and Depositories 47-53

Transfer Agents 54-57

Regulatory Overview 58-65

Business Activities 66-144

Brokerage 66-74

Firm Trading 75-111

Investment Banking 112-119

Financing 120-132

Other Activities 133-144

2 Broker-Dealer Functions, Books, and Records  01-177

Introduction 01-18

Overview 01-03

Original Entry Journals 04-06

General Ledger 07

Stock Record 08-12

Regulatory Recordkeeping Requirements 13-15

Trade Date and Settlement Date 16-18

Trade Execution 19-60

Customer Trades 19-48

Proprietary Trades 49-60

Clearance and Settlement 61-90

Overview 61-65

Comparison 66-70

Settlement 71-87

Bookkeeping 88-90

Specialized Clearance Activities 91-119

Mortgage-Backed Securities 91-95

Government Securities 96-98

Repos and Reverse Repos 99-100

Derivative Securities  101-103

Commodity Futures and Options on Futures 104-109

Forward Transactions 110

Municipal Securities  111-112

International Securities 113

Options on Securities 114-119

Reconciliation and Balancing 120-123

Custody  124-135

Possession or Control 125-129

Securities Transfer 130-135

Dividends, Interest, and Reorganization 136-149

Dividends and Interest 136-144

Reorganization 145-149

Collateralized Financing 150-164

Stock Loan and Stock Borrow 150-154

Bank Loan Financing 155-158

Reverse Repos and Repos 159-164

Regulatory Considerations 165-172

Tax Information Reporting for Certain Customer Transactions 173-176

Illustrative Stock Record Entries 177

3 Regulatory Considerations  01-188

Applicable Rules 05-10

Interpretations of Rules 09-10

Explanation of Significant SEC Financial Responsibility Rules  11-125

SEC Rule 15c3-3, "Customer Protection—Reserves and Custody of Securities" 11-40

SEC Rule 15c3-1, "Net Capital Requirements for Brokers or Dealers" 41-60

SEC Rule 15c3-1(e), "Notice Provisions Relating to the Limitations on the Withdrawal of Equity Capital"   61-65

SEC Rule 17a-13, "Quarterly Security Counts to Be Made by Certain Exchange Members, Brokers, and Dealers" 66-70

SEC Rule 17a-3, "Records to Be Made by Certain Exchange Members, Brokers, and Dealers"    71

SEC Rule 17a-4, "Records to Be Preserved by Certain Exchange Members, Brokers, and Dealers"    72

Regulation T and Maintenance Margin 73-79

Account Statement Rule(s) 80-81

SEC Rules and CFTC Regulations Governing Customer Margin for Transactions in Security Futures      82

SEC Rules 17h-1T and 17h-2T 83-86

SEC Rule 17Ad-17, "Lost Securityholders and Unresponsive Payees" 87-92

SEC Rule 17Ad-22, "Clearing Agency Standards"  93-94

SEC Rule 17-248—Subpart C, "Regulation S-ID: Identity Theft Red Flags" 95

SEC Rule 506 of Regulation D and SEC Rule 144A 96-97

SEC Rule 15c3-5, "Risk Management Controls for Brokers or Dealers with Market Access" 98-101

SEC Rule 17a-5, "Reports to Be Made by Certain Brokers and Dealers" 102-122

Anti-money Laundering Regulations 123-125

Reporting Requirements 126-151

Consolidation of Subsidiaries 132-134

Form Custody 135

Other Periodic Reporting 136

The Annual Audited Financial Report 137-151

Filings Concurrent With the Annual Audited Financial Report 152-161

Compliance or Exemption Report Required by SEC Rule 17a-5 152-154

Report to State Regulatory Agencies 155

Financial Statements to Be Furnished to Customers of Securities Broker-Dealers 156-161

Other Reports 162-171

Reports on Securities Investor Protection Corporation Assessment 162-164

Reports on Agreed-Upon Procedures for Distributions 165

PCAOB Accounting Support Fee 166-171

Additional Requirements for Registered Investment Advisers 172-180

Rules Applicable to Broker-Dealers in Commodities and U.S. Government Securities 181

Commodities Brokers 182

Government Securities Broker-Dealers 183

OTC Derivatives Dealers 184-185

Swap Dealers and Swaps Marketplace Participants    186

Annual Compliance Certification 187-188

4 Internal Control  01-70

Introduction 01-06

The Control Environment 07-09

Risk Assessment for Financial Reporting Purposes    10-19

Control Activities 20-23

Information and Communication 24-30

Information and Communication Control Activities  27-30

Monitoring Activities 31-36

Broker-Dealer Control and Monitoring Activities 37-62

Sales and Compliance 41-44

Clearance 45-46

Securities Settlement  47-48

Custody 49-50

Dividends, Interest, and Reorganization 51-52

To-Be-Announced Securities 53

Principal Transactions 54-56

OTC Derivative Transactions 57

Commissions 58

Collateralized Financings 59-61

Period End Financial Reporting 62

SEC Requirements for Management’s Report on Internal Control Over Financial Reporting for Issuers 63-70

Annual Reporting Requirements for Issuers 67

Quarterly Reporting Requirements for Issuers 68-70

5 Accounting Standards  01-124

Accounting Model 02-40

Definition of Fair Value 06-08

Application of Fair Value Measurement to Liabilities and Instruments Classified in a Reporting Entity’s Shareholders’ Equity 09-11

Valuation Techniques 12-14

Inputs to Valuation Techniques 15-16

Application to Financial Assets and Financial Liabilities With Offsetting Positions in Market Risks or Counterparty Credit Risk 17-19

Inputs Based on Bid and Ask Prices 20

Present Value Techniques 21-24

The Fair Value Hierarchy 25-28

Fair Value Measurements of Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)  29-32

Fair Value Determination When the Volume or Level of

Activity Has Significantly Decreased 33-37

Fair Value Option 38-40

Additional Fair Value Considerations  41-54

Financial Instruments Listed on a Recognized Exchange 41-45

Financial Instruments Not Listed on a Recognized Exchange but Having a Readily Available Market Price 46-48

Financial Instruments Not Having a Readily Available Market Price 49-54

Trade-Date Versus Settlement-Date Accounting 55-68

Proprietary and Principal Transactions 58-65

Agency Transactions  66-68

Statement of Financial Condition Considerations      69-112

Due From, and Due to, Other Broker-Dealers and Clearing Entities 69-70

Transfers of Financial Assets 71-85

Exchange Memberships Owned or Contributed  86

Suspense Accounts 87

Derivatives 88-97

Conditional Transactions 98

Leveraged Buyouts and Bridge Loans 99

Asset Securitizations  100-103

Variable Interest Entities 104

Soft-Dollar Arrangements 105-109

Mandatorily Redeemable Instruments 110-112

Statement of Income or Loss Considerations 113-124

Underwriting Revenues and Expenses 113-117

Mutual Fund Distribution Costs 118-119

Half-Turn Convention 120

Interest, Dividends, and Rebates 121-123

Costs Associated With Exit or Disposal Activities    124

6 Financial Statement Presentation and Classification  01-163

Introduction 01-12

Financial Statements 13-30

Statement of Financial Condition 13-15

Statement of Income or Operations  16-19

Statement of Cash Flows 20-21

Statement of Changes in Ownership Equity 22-23

Statement of Changes in Subordinated Borrowings 24

Consolidation of Subsidiaries 25-27

Going Concern 28-30

Supplementary Schedules 31-38

Computation of Net Capital Pursuant to SEC Rule 15c3-1 33

Computations for Determination of Reserve Requirements Pursuant to SEC Rule 15c3-3 34-35

Information Relating to Possession or Control Requirements Under SEC Rule 15c3-3 36-37

Schedules of Segregation Requirements and Funds in Segregation for Customers’ Trading Pursuant to the Commodity Exchange Act 38

Statement of Financial Condition Account Descriptions   39-96

Cash and Securities Segregated Under Federal and Other Regulations 40

Memberships in Exchanges 41-45

Securities Sold Under Agreements to Repurchase and Securities Purchased Under Agreements to Resell   46-52

Securities Borrowed and Securities Loaned 53-60

Securities Received as Collateral and Obligation to Return Securities Received as Collateral 61-63

Receivables From and Payables to Broker-Dealers, Clearing Organizations, and Others 64-72

Receivables From and Payables to Customers 73-76

Deferred Dealer Concessions 77

Securities Owned and Securities Sold, Not Yet Purchased 78-85

Other Borrowed Funds 86-88

Subordinated Borrowings 89-93

Commitments and Guarantees 94-95

Equity  96

Statement of Income or Operations Account Descriptions  97-120

Commission Income and Related Expense 98-101

Interest Income and Interest Expense 102-103

Dividend Income and Dividend Expense 104

Principal Transactions (Trading Gains and Losses)  105

Investment Banking Fees and Expenses 106-109

Asset Management and Investment Advisory Income   110

Mutual Fund Fees 111

Floor Brokerage, Exchange Fee, and Clearance Expenses 112-114

Occupancy and Equipment Expenses 115

Employee Compensation and Benefits Expenses  116-118

Technology and Communications Expense 119

Management and Allocated Corporate Overhead Expense 120

Disclosures 121-142

Fair Value Disclosures 121-124

Disclosures Related to Transfers of Financial Assets Accounted for as Sales 125-126

Disclosures Related to Transfers of Financial Assets Accounted for as Secured Borrowings 127

Disclosures of Certain Significant Risks and Uncertainties and Contingencies 128-138

Derivative Instruments Disclosures 139-142

Guarantee Disclosures  143-144

Related Party Disclosures 145-150

Subsequent Events Disclosures 151-153

Balance Sheet Offsetting Disclosures 154-159

Financial Statements and Schedules 160-163

Appendix

A Information Sources

B Illustrative Example of Compliance Report Required by SEC Rule 17a-5

C Illustrative Example of Exemption Report Required by SEC Rule 17a-5

D Overview of Statements on Quality Control Standards

E The New Revenue Recognition Standard: FASB ASC 606

F The New Leases Standard: FASB ASU No. 2016-02

G Accounting for Financial Instruments

H Schedule of Changes Made to the Text From the Previous Edition

Glossary

Index of Pronouncements and Other Technical Guidance

Subject Index