Focus report

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Focus report "is the fundamental reporting form used by broker-dealers to report financial conditions to the regulatory agencies" (The Securities Institute of America, Inc., 2015, p. 89). More specifically it is called a SEC Form X-17A-5 and it must be completed by all broker-dealers registered with the U.S. Securities and Exchange Commission (SEC). This form consists of three parts stated below and includes an annual audit, which should be carried by a certified public accountant (CPA).

It is submitted electronically and includes all of the following parts (The Securities Institute of America, Inc., 2015, p. 89):

  • FOCUS Part I is an outline of key indicators and financial numbers (or shortly - abbreviated listing of essential and most important data) that are submitted monthly within 10 working days after the end of the month by intermediaries maintaining customer accounts;
  • FOCUS Part II is the balance sheet, profit and loss account and quarterly net capital calculations(it is more detailed reporting including a balance sheet and income statement). Any broker who clears customer accounts must submit this part within 17 business days of the end of each calendar quarter;
  • FOCUS Part IIA is submitted quarterly. Any broker who does not maintain or delete customer accounts only needs to submit an application FOCUS Part II A within 17 working days after the end of every quarter (The Securities Institute of America, Inc., 2015, p. 89).

Rule of focus report

Rule 17a-5 also necessitate from brokers who maintain client accounts to provide customers with financial statements twice a year. One of them will be the audited financial statements, which must also be submitted to the SEC no later than 60 days after the date of the mentioned document (the financial statement). The report should be dispatched to clients within 45 days from the date of sending the report to the SEC. The second report will be an unaudited statement consigned about half year later. Current balance sheets should be made available to bona fide customers upon their request. Broker dealers also should (within 105 days after the date of report) furnish customers with the following data(The Securities Institute of America, Inc., 2015, p. 89):

  • "Unconsolidated balance sheet with relevant notes prepared in accordance with generally accepted accounting principles;
  • Statement containing the company's net capital and its required net capital;
  • A statement indicating the existence of any material shortcomings in the accounting system, internal accounting control or the procedures for safeguarding securities;
  • A statement indicating that Part I of the FOCUS report is available for copying at the headquarters of the broker-dealer and the SEC regional office" (The Securities Institute of America, Inc., 2015, p. 89):.

Summing up, the FOCUS report is the basic financial and operational report required of all brokers or dealers. Instructions should be used in the preparation of this report and are stated as an integral part of this report. And it also can be referred to as a Financial and Operational Combined Uniform Single Report.

Examples of Focus report

  • The Balance Sheet: This portion of the Focus Report contains information about a broker-dealer’s assets, liabilities and shareholders’ equity. It also includes information on any off-balance sheet arrangements, such as derivatives and other investments held by the firm. This section of the report is used to assess the financial condition of the firm and is the primary source of information for regulators.
  • The Income Statement: This section of the Focus Report contains information about a broker-dealer’s income, expenses, and net income. This section of the report can be used to assess the profitability of the firm, as well as to identify any potential areas of risk.
  • The Statement of Cash Flows: This section of the Focus Report contains information about the cash flows of a broker-dealer, including the sources and uses of cash. This section of the report can be used to assess the liquidity of the firm, as well as to identify any potential areas of risk.
  • The Audit: The audit, which is conducted by a certified public accountant (CPA), contains information about the broker-dealer’s financial condition, including the accuracy of the financial statements, the adequacy of the internal controls, and the adequacy of the disclosures. The audit is used to provide assurance to the regulators that the financial information provided by the broker-dealer is accurate and complete.

Advantages of Focus report

The Focus report is a vital tool for broker-dealers when it comes to meeting their regulatory requirements. The advantages of using this form include the following:

  • It provides investors and the SEC with a comprehensive overview of a broker-dealer's financials, including its assets, liabilities, income, and expenses.
  • It also helps ensure that broker-dealers maintain accurate financial records and comply with all applicable regulations.
  • The annual audit required by the form can help identify any potential problems or errors in the broker-dealer's financials and provide the auditor with detailed information about the broker-dealer's financial situation.
  • The Focus report provides the SEC with the necessary information to evaluate the broker-dealer's financial health and measure its compliance with the applicable laws and regulations.
  • The form also helps the SEC to identify any potential fraud or abuse of the securities laws by broker-dealers.
  • Finally, the Focus report helps broker-dealers stay informed about changes in the securities market and the financial industry as a whole.

Limitations of Focus report

The Focus report has several limitations that should be taken into consideration. These include:

  • The Focus report is limited in its accuracy due to the fact that it is filled out by the broker-dealer, and not an external auditor. Therefore, it may not be as reliable as an audit conducted by a CPA.
  • The Focus report is limited in its scope. It is a snapshot of the broker-dealer's financial condition at a given point in time, and does not provide a comprehensive picture of the broker-dealer's overall financial health.
  • The Focus report is limited in its ability to detect potential fraud or other irregularities. It does not provide a detailed analysis of transactions or other activities that may not be compliant with SEC regulations.
  • The Focus report is limited in its ability to assess risk. It does not provide an in-depth assessment of the broker-dealer's risk management practices or its risk profile.
  • The Focus report is limited in its ability to provide meaningful insight into the broker-dealer's operations. It does not provide information about the number of accounts held or the types of financial products offered by the broker-dealer.

Overall, the Focus report provides a snapshot of the broker-dealer's financial condition, but it is limited in its accuracy, scope, ability to detect irregularities, risk assessment, and ability to provide meaningful insight into the broker-dealer's operations.

Other approaches related to Focus report

One of the approaches related to Focus report is the National Association of Securities Dealers (NASD) Regulatory Reporting System (RRS). This system is used to collect and review reports from broker-dealers, including the Focus report and other reports required by the SEC. The system allows for quick and easy access to the reports and assists regulatory agencies in their oversight of broker-dealers.

Another approach related to Focus report is the Reg BI (Regulation Best Interest). This regulation requires broker-dealers to act in the best interests of their customers when providing retirement advice and when recommending securities transactions. The regulation also requires broker-dealers to conduct an annual review of their procedures and practices to ensure they are meeting their obligations under the rule.

The Financial Industry Regulatory Authority (FINRA) also has a set of rules and regulations related to Focus reports. These rules require broker-dealers to maintain accurate financial records, including the Focus report, and to provide them in a timely manner to the FINRA on request.

Finally, the SEC has issued a number of interpretive releases and guidance related to the Focus report, which provide additional clarity and direction on the requirements of the report.

In summary, there are several approaches related to Focus report, including the NASD Regulatory Reporting System, Reg BI, FINRA rules and SEC interpretive releases. These approaches provide additional guidance and oversight for broker-dealers in their filing of the report.


Focus report — recommended articles
Management representation letter — External audit — Abridged accounts — Accounting manual — Accounting documents — Minute book — Internal audit — Audit evidence — Interim Statement

References

Author: Urszula Bochenek

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