Broker Dealer Annual Audit: Checklist of What you Need to Prepare

Changes to the annual audit require broker-dealers to be proactive in being prepared. Working closing with the US Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA) reviews broker-dealers closely to ensure compliance with rules and regulations. Failure to comply may result in heavy fines or a disruption in business.

Owners of brokerage firms need to actively communicate the importance of following proper procedures to employees. Individuals are entrusting you with their finances. Any type of mishandling of funds or failure to follow rules damages your brokerage firm’s reputation. If you are unsure of the recent changes or need answers, contact your brokerage firm’s CPA to guide you through the requirements for the annual audit.

Basic Checklist to Prepare for Your Broker-Dealer Audit

Ensuring your brokerage firm is compliant is the main purpose of the FINRA annual broker-dealer audit. The auditor will check different aspects of your daily operations. Prior to the audit, prepare your employees. Ensure your team is following the rules and regulations in compliance with the SEC and the FINRA requirements.

The auditor will carefully examine your brokerage firm’s daily operating procedures. Having your financial statements, company’s logs, and daily monitoring records prepared is critical. The auditor checks your records to ensure the proper handling of your clients’ money. Before the audit day arrives, gather all the necessary documentation, including:

  • License: In your annual audit, the broker-dealer will check your license. Do not allow your license to lapse for any reason. An up to date license ensures your brokerage firm is aware of the industry’s changing requirements and guidelines.
  • Financial Statements and Reports: Current financial statements to provide documentation for the proper handling of investments.
  • Customer Accounts: Review the customer account records to ensure all the information is current. Having employees update addresses, telephone numbers, tax identification numbers, and personal details should be an ongoing process throughout the year to eliminate the possibility of errors.
  • Compensation Records: Provide compensation records to verify proper procedures.
  • Communication: Provide documentation of emails or letters regarding SEC or FINRA communication.
  • Complaints: The auditor will analyze your records to ensure all procedures follow fair trade practices. Provide the auditor with resolutions regarding any type of complaint. Failing to be aggressive in fixing or handling complaints may harm your brokerage firm’s ability to conduct business.
  • Employee Records: A current list of managers who handle the daily transactions of higher funded investments.

If you are uncertain about the exact records, contact your firm’s CPA. Your CPA will be able to provide you with insight. The broker-dealer audit review of the documents is from an independent source. Any errors or failure to provide the current statements or documentation will delay the auditing process. Being prepared and professional at the time of the audit is critical.

Assessing the documents for misrepresentation, the auditor will carefully examine all materials to identify risks. Keeping accurate records of your customers, employees, and daily transactions will help minimize the chances of failing the audit. Costly fines, damaged reputation, and delay in business can result from an inaccurate audit review. Keep in mind, providing more documentation and records is better than too little.  If your firm is looking for a CPA, contact Ernst Wintter & Associates.

Why Does My Small Business Need to Keep All These Accounting Records?

Running a small business is a big task.  Between the everyday tasks at the core of your company and keeping your staff and customers happy, you may be compelled to expunge files to make space.  Before you opt to get rid of your small business accounting records, take note of these reasons for keeping your files in shape and on hand.

  • Audits.  The Internal Revenue Service is a powerful entity with the ability to request years of records if an audit is initiated.  Payroll records should be kept for at least four years, and a tax audit can go back as far as six years.  In general, it is helpful to keep records for at least seven years before expunging them to ensure that you cover any potentially needs, should an audit be scheduled.
  • Monitoring Progress.  You can’t know where you’re going until you know where you’ve been.  Keeping track of your small business accounting records will afford you the ability to paint an accurate picture of your company’s progress.  By documenting your income statements, balance sheets, and sales records, you’ll be able to better understand which items are selling, how much inventory you’re storing unnecessarily, and how you can improve your overall business functions.
  • Preparing for Credit Needs.  As your company grows, you may find yourself in need of additional funds to help with the expansion of your business.  Well-kept small business accounting records can mean the difference between wanting a loan and obtaining one.  Properly kept small business accounting records, including balance sheets, income statements, and payroll documents can provide you with the leeway you need to grow your business for the long term.  On the other hand, poorly kept or inadequate documentation could potentially lose a loan that could have meant big things for your business.
  • Employee Inquiries.  Whether you’re talking about present or past employees, anyone who has worked for you in most forms or fashions can generally request information at any time.  It’s important to remember that your small business accounting records don’t solely include financial statements that could be audited by outside inquirers.  You may be required to present information relative to employee benefits, including details about benefit plans, contributions, payments, and other imperative details.  It’s vital that your small business accounting records are healthy enough to withstand any inquiry so your staff can answer any necessary questions at a moment’s notice.

Small business accounting records needs to be kept tidy to ensure the health of the companies they encompass.  Between local, state, and federal regulations, the housekeeping of these records is not only ideal, but it’s essential.  It can also be tough to do if you’re operating a company that’s stretched in resources as it is.

If you need help keeping your small business accounting records in order, contact our team at Ernst Wintter & Associates, and let’s talk about how we can help.

Tax Implications of Selling Your Home

The process of buying or selling a home is often mind-boggling. Misinformation about the tax implications of real estate sales abound and it is easy to get overwhelmed by these complex transactions.

Whether a seller is responsible for paying taxes on the sale of a home and the amount of those taxes depends on how long they’ve lived in the home. In many cases, homeowners can pocket up to $250,000, or $500,000 if filing jointly with a spouse, tax-free. The IRS has specific guidelines outlining this exemption and exactly who qualifies.

Exclusion of Taxes for Real Estate Transactions

For those homeowners receiving larger amounts from the sale of their main home may qualify to exclude up to $250,000 of that gain from their income when filing their tax return. This can be extended up to $500,000 when the return is filed jointly with a spouse.

To qualify for this tax break, homeowners must meet both the ownership test and the use test, which is determined by the IRS. This means that eligibility requires that a homeowner has used a home as their main home for at least two of the five years leading up to its date of sale. The ownership and use test can be based on different two-year periods; however, both of the tests must be met during the five-year period ending on the date of the sale.

Exceptions to the Exclusion

For those selling properties such as vacation homes, investment homes or rental properties, these exclusions generally do not apply. These transactions are typically subject to taxes on the entire income gained in the sale.

Homeowners who have sold another home within the five-year period, and were eligible for the exclusion, will generally not be eligible for a second exclusion. The IRS requires that the sale of a home be reported on a tax return, even if it is excluded. Sales with a gain over $250,000 (or $500,000 for a married couple) are subject to capital gains tax.

Certain special situations allow homeowners to suspend the five-year test period. For example, some active duty military personnel and their spouses may elect to extend the period up to 10 years.

The Benefits of Working with a Financial Professional

The tax implications of a real estate transaction can be complex. This is why many homeowners trust the counsel of a reliable professional when selling their homes. Relying on the expertise of an experienced financial professional will help you to make wise decisions regarding the sale of your home.

At Ernst Wintter & Associates we understand the financial intricacies of selling your property. We will be with you each step of the way to help you understand the process and the scope of any tax ramifications. Learn more by contacting our accounting experts today.