Commission Notice:
Broker-Dealer Financial Statement Requirements under Section 17 of the Exchange Act

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48281]

August 4, 2003

Broker-Dealer Financial Statement Requirements under Section 17 of the Exchange Act

Section 17(e)(1)(A) of the Securities Exchange Act of 1934 ("Exchange Act") requires that every registered broker-dealer annually file with the Commission a certified balance sheet and income statement, and Section 17(e)(1)(B) requires that the broker-dealer annually send to its customers its "certified balance sheet."¹ The Sarbanes-Oxley Act of 2002 ("Act")² established the Public Company Accounting Oversight Board ("Board")³ and amended Section 17(e) to replace the words "an independent public accountant" with "a registered public accounting firm."⁴

The Act establishes a deadline for registration with the Board of auditors of financial statements of "issuers," as that term is defined in the Act.⁵ The Act does not provide a deadline for registration of auditors of broker-dealers that are not issuers ("non-public broker-dealers"). Application of registration requirements and procedures to auditors of non-public broker-dealers is still being considered.

Accordingly, we believe that it is consistent with the public interest and the protection of investors that non-public broker-dealers file with the Commission and send to their customers the documents and information required by Section 17(e) certified by an independent public accountant instead of a registered public accounting firm until January 1, 2005, unless rules are in place regarding Board registration of auditors of non-public broker-dealers that set an earlier date.⁶

IT IS THEREFORE ORDERED, pursuant to Section 17(e) of the Exchange Act, that non-public broker-dealers may file with the Commission a balance sheet and income statement and may send to their customers a balance sheet certified by an independent public accountant instead of certified by a registered public accounting firm until January 1, 2005, unless rules are in place regarding Board registration of auditors of non-public broker-dealers that set an earlier date.

By the Commission.

Margaret H. McFarland
Deputy Secretary

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1	Exchange Act Rule 17a-5 requires registered broker-dealers to provide to the Commission and to customers of the broker-dealer other specified financial information.
2	Public Law 107-204.
3	Section 101 of the Act.
4	Section 205(c)(2) of the Act.
5	Section 2 of the Act defines "issuer." Section 102 of the Act establishes a specific deadline by which auditors of issuers must register with the Board. Based on the statutory deadline of 180 days after the Commission determined the Board was ready to carry out the requirements of the Act, that date is October 22, 2003. See Exchange Act Release No. 48180 (July 16, 2003).
6	We note the continued applicability of Exchange Act Rule 17a-5. We wish to highlight Exchange Act Rule 17a-5(g), which requires, among other things, that audits of broker-dealers be made in accordance with generally accepted auditing standards (GAAS). GAAS requires, for example, that audits be conducted with due professional care by independent persons with adequate technical training and proficiency as an auditor.

http://www.sec.gov/rules/other/34-48281.htm