Quick Answer
Prohibited books-and-records conduct includes falsifying records, making false or incomplete entries, failing to create or keep required records current, and destroying, concealing, deleting, or making a record inaccessible before the applicable preservation period ends so that no compliant preserved or reconstructible record remains.
The same record trail that supports reconciliations and reporting can fail through inaccurate content, missing detail, poor maintenance, or premature loss of access.
Was the Record Falsified or Made Inaccurate?
- Falsification means creating, altering, or causing a record to be inaccurate.
- Accurate record requirement: Records of transactions, cash movements, securities movements, account activity, and financial condition must reflect the underlying activity accurately.
- False or incomplete entry: An entry that does not accurately reflect the underlying activity defeats the requirement for complete, current books and records.
The firm must make required records, keep them current, and make them accurately reflect the underlying activity. An inaccurate entry defeats that requirement.
Exam Tip: Gotchas
- Falsification includes causing a record to be inaccurate. The problem is not limited to physically changing an existing document.
Was the Record Improperly Maintained or Retained?
- Improper maintenance: Failing to make required records, failing to keep them current, or failing to maintain required detail.
- Improper retention: Destroying or deleting a required record before the applicable preservation period ends without leaving a compliant preserved or reconstructible record, or concealing or making a required record inaccessible before that period ends.
| Conduct | Why it fails |
|---|---|
| Failure to make, update, or detail a record | The firm's books are incomplete or not current |
| Destroying or deleting too early without a compliant preserved or reconstructible record | The firm cannot satisfy the applicable preservation period |
| Concealing or losing access too early | The firm cannot satisfy the applicable preservation period |
Exam Tip: Gotchas
- Improper maintenance covers a missing required detail. A current record is incomplete when that required field is missing.
- A record can be improperly retained even when it still exists. If the firm makes it inaccessible before the preservation period ends, it has failed the retention requirement.
What Should You Check on Exam Day?
- Treat creating, altering, or causing an inaccurate record as falsification.
- Require the firm to make required records, keep them current, and preserve the required detail.
- Do not allow destruction or deletion before retention ends when no compliant preserved or reconstructible record remains. Do not allow concealment or loss of access before retention ends.