Securities and Exchange Commission (SEC) Takes Steps to Minimize Disruptions of SEC Rule 17a-5 in Light of the Indictment of Arthur Andersen
March 19, 2002
The Securities and Exchange Commission ("SEC" or "Commission") has taken certain steps in order to minimize any potential disruptions that may occur as a result of the indictment of Arthur Andersen LLP (Andersen) by the Justice Department. These steps may impact broker/dealers that currently engage Andersen to conduct their annual audits as required by SEC Rule 17a-5.
Andersen has assured Commission's staff that it will continue to audit financial statements, in accordance with generally accepted auditing principles as well as applicable professional and firm auditing standards and quality controls. As long as Andersen continues to be in a position to provide those assurances, the Commission will continue to accept financial statements audited by Andersen.
The following guidance is provided for broker/dealers (for whom NASD is the Designated Examining Authority) that currently engage Andersen to conduct their annual audits. It is intended to minimize disruption to affected broker/dealers as they complete certain pending or future filings.
Financial Statements to Customers as Required by SEC Rule 17a-5 (c)
Rule 17a-5 (c) requires certain firms, mostly clearing firms, to send to their customers1 an audited financial statement. This statement consists primarily of the firm's balance sheet, with appropriate footnotes, and discloses the firm's net capital and required net capital. This statement must be sent to customers within 105 days after the date of the member's fiscal year end.
In lieu of an audited financial statement, a broker/dealer that has engaged Andersen to conduct their annual audit, may instead furnish an unaudited financial statement to their customers. A clearing firm may avail itself of this relief if its fiscal year end is between and including January 14, 2002 and April 15, 2002, and it had not received a manually-signed annual audit report on or before March 14, 2002.
Annual Audited Financial Statements Required Pursuant to SEC Rule 17a-5 (d)
Rule 17a-5 (d) requires all broker/dealers, unless otherwise exempt, to file annual audited financial statements with the Commission, their designated examining authority, and all self regulatory organizations of which they are a member. This filing is extensive and includes a member's Statement of Financial Condition, Statement of Income (Loss), and Computation of Net Capital.
Broker/Dealers with an Obligation to file an Annual Audit for a Fiscal Year Ending on or Prior to January 14, 2002
Broker/dealers with a fiscal year end on or prior to January 14, 2002 were required to submit their audited financial statements no later than March 14, 2002. As such, these firms should have already filed their audits, or if an extension was granted have a new "due date" on or before April 14, 2002. (It is regulatory practice to limit extensions to an additional 30 calendar days after the original audit due date.) Broker/dealers within this category that will need additional time to submit their financial statements should contact their local NASD District Office to obtain an additional extension.
Broker/Dealers with an Obligation to file an Annual Audit for a Fiscal Year Ending Between and Including January 14, 2002 and April 15, 2002 that had not Received a Manually-Signed Audit Report on or Before March 14, 2002
The SEC is granting firms within this category a 60-calendar day extension in which to file their annual audits. However, member firms falling within this category must notify their local NASD District Office in order to avail themselves of the extension. In the event any such firm is unable to submit their annual audit by the revised due date, the firm must contact its local NASD Office to discuss the matter relative to any then-available guidance from the Commission.
Broker/Dealers with an Obligation to file an Annual Audit for a Fiscal Year Ending on or After April 16, 2002
Broker/dealers in this category should plan on filing their annual audits by the normal due date. If the Commission change its position on accepting audits from Andersen, NASD Regulation will post that information on our website at www.finra.org. Broker/dealers in this category are encouraged to review the site for possible changes.
Should you have any questions regarding this matter, please contact your local NASD District Office.
1 Broker/dealers are required to also file copies of the report with the agencies noted in Rule 17a-5 (c)(1).