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In the highly regulated world of broker-dealers, annual audits are a standard compliance requirement, but many firms underestimate the strategic importance of a mid-audit review.
In the securities trading and brokerage market, maintaining substantial financial and operational control at each stage is crucial; therefore, a mid-year review is one such checklist. In fact, it is more than just a checkpoint. It is a proactive approach to strengthen financial reporting, internal controls, and regulatory compliance before the year-end pressure intensifies.
In this Article, we are going to cover all the crucial aspects of the mid-year audit review that a broker-dealer should know, so they can ensure timely and accurate filing through e-Focus.
A mid-year broker dealer audit review is a structured assessment conducted midway through the financial year to evaluate a broker-dealer’s books, compliance framework, reporting accuracy, and internal controls. Unlike an audit at year’s end, a mid-year review focuses on spotting issues early and preparing the firm for seamless year-end audits.
This review may cover:
Mid-year reviews or assessments are usually performed for internal compliance or risk management purposes, and some firms, especially those with complex operations, may opt for interim audit procedures to identify and address potential issues before year-end. The mid-year audit review is not directly a statutory compliance but rather a voluntary checkpoint, typically conducted to enhance oversight, or to address clients, investors, or parent company (if any) needs and ensure compliance with evolving FINRA and SEC rules.
As professionals as well as regulations suggest that broker-dealers should be ready for a mid-year audit review because of the following reasons:
Sometimes, broker-dealers perceive the mid-year review as a burden, leading to stress, anxiety, and a defensive approach to compliance. However, viewing the mid-year review as a hurdle can ultimately prove costly. When approached as an opportunity rather than an obligation, it becomes a powerful tool for continuous improvement- helping firms build a strong, proactive culture of compliance, financial discipline, and risk management.
Broker-dealers must comply with several key FINRA and SEC requirements across each financial year, which the mid-year review directly supports
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This rule requires quarterly filing of FOCUS reports and monthly filing of margin balance reports. FOCUS reports capture essential broker-dealer financial data, including net capital computation, customer protection schedules, and account reconciliations.
Each carrying or clearing member shall notify FINRA in writing, no more than 48 hours after its tentative net capital as computed pursuant to SEA Rule 15c3-1 has declined 20 percent or more from the amount reported in its most recent FOCUS Report or, if later, the most recent such notification filed with FINRA. For purposes of this paragraph, “tentative net capital as computed pursuant to SEA Rule 15c3-1” shall exclude withdrawals of capital previously approved by FINRA.
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FINRA Rule 3120 requires firms to establish, maintain, and enforce a system of supervisory control policies and procedures that are tested and verified at least annually. A report must be prepared for senior management that includes –
FINRA Rule 3130 mandates that a member firm’s Chief Executive Officer (CEO) provide an annual certification confirming that the firm has adequate processes for establishing, maintaining, reviewing, testing, and modifying its compliance and supervisory procedures. This rule is an essential part of the supervisory framework, alongside Rules 3110 (Supervision) and 3120 (Supervisory Control System)
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Continuous monitoring of anti-money laundering (AML) compliance under FINRA Rule 3310 is a required practice. Mid-year reviews provide an opportunity to assess and reinforce compliance with these rules to prevent illicit activity.
FINRA Rule 3310 requires firms to have a written AML compliance program, which must be approved by senior management and is reasonably designed to achieve and monitor the firm’s compliance with the Bank Secrecy Act (BSA) and its implementing regulations.
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FINRA regularly issues Information Notices with reminders about key filing deadlines and rule changes, so firms should manage compliance calendars accordingly.
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Broker-dealers audits should emphasize these key audit areas during their mid-year review:
Broker-dealers can take several steps to prepare for a successful mid-year review:
Broker-dealers must maintain a strong compliance backbone not only for annual audits but also through regular filings and ongoing supervisory reviews. Here is the broker-dealer audit checklist:
You cannot ignore the fact that mid-year audit preparedness is a key part of regulatory compliance. It plays a crucial role in safeguarding your firm’s reputation and supporting future growth. A mid-year audit isn’t an extra chore — it’s your competitive edge. It’s about safeguarding your firm’s reputation and future growth. Mid-year reviews have emerged as a best practice for broker-dealers seeking to enhance the efficiency of compliance with regulatory requirements.
At Mercurius, we help broker-dealers turn compliance into confidence — from mid-year reviews to annual PCAOB broker dealer audits. our team of experienced professionals, including PCAOB-registered auditors and public accountants, assists in establishing robust accounting systems, fulfilling capital adequacy norms, maintaining regulatory compliance, and preparing accurate financial and audit reports.
What is a mid-year audit review for broker-dealers?
A mid-year audit review for broker-dealers is an internal, proactive assessment of a firm’s financial records, internal controls, and compliance with regulatory requirements (SEC and FINRA) halfway through the fiscal year.
Is mid-year audit mandatory under SEC or FINRA?
The mid-year audit is not directly or specifically mandated by either SEC or FINRA, but they provide an edge to companies for their annual filings because both regulators primarily require: Annual audits of financial statements by independent auditors, and Quarterly filings and interim financial reporting. While quarterly or interim financial reports may require an external review, they do not require a full mid-year audit.
How does a mid-year review differ from an annual audit?
A mid-year review focuses on reviewing the key financial information, internal controls, and compliances procedures to identify issue early in the organization and then support year end readiness while annual audit is a comprehensive and mandatory examination of the full-year financial statements. It involves substantive testing, verification of transactions and balances, and a detailed evaluation of internal controls. The audit provides an independent opinion on whether the financial statements present a true and fair view.
What documents are required for a mid-year audit?
While broker dealer audit requirements may vary by company and auditor, typical documents for a mid-year audit/review include:
Financial Records
Supporting Documents
Compliance & Internal Controls
Management Information
This documentation helps auditors/reviewers validate financial information, ensure controls are functioning, and prepare for the annual audit smoothly.
