FOCUS Reports

The FOCUS regime is the SEC's continuous-monitoring infrastructure for BDs. Each filing forces the firm to compute the net-capital ratio and (if applicable) the customer reserve formula on a fixed cadence, and report the results to FINRA (the firm's Designated Examining Authority, DEA) and the SEC.

The annual audit report layers an independent-auditor verification on top, plus internal-controls or exemption reporting to support the SEC's risk-based examinations.

Form X-17A-5: Three Parts

The FOCUS form has three parts, each filed by different categories of firms on different cadences:

Part I is the monthly snapshot for carrying / clearing firms; Part II is their quarterly filing. Part IIA is the quarterly filing for firms that neither clear nor carry.

Part II and Part IIA are also due within 17 business days after fiscal year-end when that date is not a calendar-quarter end. That additional filing is separate from the annual audit report's 60-calendar-day deadline.

Cadence by Firm Type

Carrying / clearing firms hold customer assets and run the reserve formula. The SEC wants monthly visibility into their net capital and reserve compliance. Non-carrying firms have a smaller customer-protection footprint, so quarterly reporting suffices.

Exam Tip: Gotchas

• Part I (carrying / clearing) is monthly within 10 business days; Part II and Part IIA are quarterly within 17 business days. Do not merge the deadlines. Carrying firms file monthly Part Is plus quarterly Part IIs plus the annual audit; introducing firms file quarterly Part IIAs plus the annual audit.
• 17 business days is roughly 3.5 calendar weeks. A firm with a March 31 quarter-end has until approximately April 25 to file its quarterly Part II or IIA. The exam may try to substitute "20 business days" or "1 month"; the rule is 17 business days.

The Annual Audit Report (Part III)

The Part III annual report is the substantive deliverable that anchors the entire regime. It includes:

Compliance vs. Exemption Reports

• A firm subject to the customer protection rule (carries customer accounts or holds customer funds / securities) files a Compliance Report detailing controls over customer-asset segregation
• A firm claiming an exemption from the customer protection rule (pure introducing firm with no customer asset custody) files an Exemption Report asserting and documenting the exemption

The audit and any included reports are filed electronically on EDGAR as an Interactive Data File (XBRL-tagged), the electronic-filing format Regulation S-T requires. Paper filing was eliminated as of June 30, 2025.

The Statement Regarding Independent Public Accountant

Annually, the firm files a statement regarding independent public accountant:

• Filed by December 10 annually
• Dated no later than December 1
• Identifies the auditor the firm has engaged for the upcoming fiscal year audit

This filing forces the firm to commit to its auditor in writing and gives FINRA / SEC visibility into auditor turnover.

Exam Tip: Gotchas

• The annual audit report's 60-CALENDAR-day deadline runs from FISCAL year-end, not calendar year-end. A firm with a non-calendar fiscal year (say, June 30) files its audit by approximately August 29, not March 1.
• The compliance / exemption report is required regardless of which way the firm falls. A customer-protection-subject firm files a Compliance Report. A customer-protection-exempt firm files an Exemption Report. There is no "no report" option.

PCAOB Registration

The independent public accountant that audits a broker-dealer must be registered with the Public Company Accounting Oversight Board (PCAOB).

• Auditors of BDs are registered with the PCAOB
• Their BD audit work is subject to PCAOB inspection
• An auditor that is not PCAOB-registered cannot legally audit a BD

Exam Tip: Gotchas

• A BD that engages a non-PCAOB-registered auditor has a FOCUS reporting violation on its annual audit, even if the audit work itself is high-quality. PCAOB registration is a procedural threshold the firm must verify before engagement. The exam may probe this around small-firm scenarios where engaging a local CPA is tempting; the rule still requires PCAOB registration.

How the Pieces Fit Together

The FOCUS regime forces the firm to compute and report its financial condition continuously:

1. Monthly (carrying firms) or quarterly (non-carrying firms): file Part II / IIA with current net-capital and (if applicable) reserve-formula numbers
2. Annually: hire a PCAOB-registered auditor, audit the financial statements and reserve / net-capital computations, file Part III with audited financials plus Compliance or Exemption Report
3. December 10 each year: file the auditor-engagement statement for the next year's audit

If any piece misses its deadline, the firm has a separate FOCUS reporting violation. The deadlines are strict and the consequence for missing them is regulatory action, not just a courtesy reminder. Late FOCUS filings are themselves an early-warning notification trigger (covered in the next section).

What Should You Check on Exam Day?

• Can you state which FOCUS part is filed monthly, by whom, and within how many business days after month end?
• Do you know the deadline, in calendar days after fiscal year end, for filing the Part III annual audit report?
• Can you confirm a broker-dealer's independent public accountant must be registered with the PCAOB before performing the annual audit?
• Do you know the December filing deadline for the statement regarding independent public accountant, and the date by which it must be dated?