FOCUS Reports
Quick Answer
The SEC's FOCUS reporting rule requires every broker-dealer (BD) to file periodic financial reports on Form X-17A-5 (the "FOCUS Report", short for Financial and Operational Combined Uniform Single Report). Carrying / clearing firms file Part II monthly within 17 business days. Non-carrying firms file Part IIA quarterly within 17 business days. Every BD also files an annual audit report (Part III) within 60 calendar days after fiscal year end.
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 | Filed By | Cadence | Deadline |
|---|---|---|---|
| Part II | Carrying / clearing BDs and other large firms | Monthly | Within 17 business days after month-end |
| Part IIA | BDs that neither clear nor carry customer accounts | Quarterly | Within 17 business days after quarter-end |
| Part III (Annual Audit Report) | All BDs | Annual | Within 60 calendar days after fiscal year end |
Part II and Part IIA capture the same financial data but at different frequency. Part II for monthly filers also requires a quarterly Part II covering the last month of each fiscal quarter, also due in 17 business days.
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
- The 17-business-day deadline is uniform across Parts II and IIA. The difference is frequency (monthly vs. quarterly), not timing. Carrying firms file 12 monthly Part IIs plus the annual audit; introducing firms file 4 quarterly Part IIAs plus the annual audit.
- 17 business days is roughly 3.5 calendar weeks. A firm with a January 31 month-end has until approximately February 26 to file. 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:
| Component | What It Covers |
|---|---|
| Audited financial statements | GAAP-style balance sheet, income statement, cash flows, statement of changes in equity, footnotes |
| Schedules | Computation of Net Capital and Customer Reserve Computation |
| Compliance Report OR Exemption Report | Compliance Report if the firm is subject to the customer protection rule; Exemption Report if the firm claims an exemption |
| Independent Public Accountant's report | Auditor opinion on the financial statements and the compliance / exemption report |
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 on EDGAR in PDF form. 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 must be registered with the Public Company Accounting Oversight Board (PCAOB). This requirement was extended to BD audits by the Dodd-Frank Act in 2010, building on the Sarbanes-Oxley Act's original PCAOB regime for public-company audits.
- 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
Think of it this way: Before Dodd-Frank, BD auditors operated under AICPA peer review and SEC oversight, but not PCAOB inspection. Dodd-Frank closed that gap. Now BD audits sit under the same PCAOB inspection program that audits public-company audits, which gives the SEC and FINRA an additional quality-assurance layer over the FOCUS reporting that depends on those audits.
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:
- Monthly (carrying firms) or quarterly (non-carrying firms): file Part II / IIA with current net-capital and (if applicable) reserve-formula numbers
- 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
- 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).