Frequently Asked Questions: The Broker-Dealer Accounting Support Fee and the Funding Process

September 30, 2015

These frequently asked questions ("FAQs") set forth the Public Company Accounting Oversight Board ("PCAOB" or "Board") staff's views on issues related to the implementation of the PCAOB funding rules as they relate to brokers and dealers. The statements contained in these FAQs are not rules of the Board, nor have they been approved by the Board.

If you have a question related to the broker-dealer accounting support fee and/or the funding process that is not addressed in these FAQs, please contact the PCAOB staff by phone at 1-866-606-3982 (Business Days: 9:00 a.m. to 5:00 p.m. ET) or by email at BillingFAQ@pcaobus.org.

General FAQs

1. How can I obtain a copy of the PCAOB's funding rules?

The PCAOB's funding rules are in Section 7 of the PCAOB's Rules and are available at http://pcaobus.org/Rules/PCAOBRules/Pages/Section_7.aspx.

2. Which brokers and dealers are subject to the broker-dealer accounting support fee?

All brokers and dealers, as such terms are defined in Section 110 of the Sarbanes-Oxley Act of 2002, as amended ("Act"),[1] as of the date the annual broker-dealer accounting support fee is calculated, are subject to the broker-dealer accounting support fee.

Generally, brokers and dealers whose average, quarterly tentative net capital is greater than $5 million during the preceding calendar year and who are required to file audited financial statements with the U.S. Securities and Exchange Commission ("Commission") are allocated a share of the broker-dealer accounting support fee greater than $0. All brokers and dealers, as of the date the broker-dealer accounting support fee is calculated, (i) that have a basis under the federal securities laws, a Commission rule, or pursuant to other action of the Commission or its staff, not to file audited financial statements with the Commission or (ii) whose average, quarterly tentative net capital is $5 million or less during the preceding calendar year are allocated a share of the broker-dealer accounting support fee equal to $0.

3. Why is the allocation of the broker-dealer accounting support fee determined using tentative net capital?

The Board's funding rules require that the allocation of the broker-dealer accounting support fee be based on tentative net capital, as such term is defined in Rule 15c3-1(c)(15) under the Exchange Act. The Board's funding rules are based on Section 109(h)(3) of the Act, which states that "[t]he amount due from a broker or dealer shall be in proportion to the net capital of the broker or dealer (before or after any adjustments), compared to the total net capital of all brokers and dealers (before or after any adjustments), in accordance with rules issued by the Board."

The Board uses tentative net capital reported by brokers and dealers on their quarterly Financial and Operational Combined Uniform Single ("FOCUS") reports to determine the allocation of the broker-dealer accounting support fee.

4. How is a broker's or dealer's share of the broker-dealer accounting support fee calculated?

Pursuant to PCAOB Rule 7102(b), brokers and dealers are allocated a share of the broker-dealer accounting support fee based on their relative average, quarterly tentative net capital. A broker's or dealer's share is its average, quarterly tentative net capital during the preceding calendar year, divided by the sum of the average, quarterly tentative net capital of all brokers and dealers described in PCAOB Rule 7102(a)(1).

5. As of what date did the PCAOB calculate the allocation of the broker-dealer accounting support fee for 2015?

For 2015, the PCAOB calculated the broker-dealer accounting support fee allocation as of August 31, 2015 ("the 2015 Calculation Date"). Under the Board's funding rules, brokers and dealers that are registered with the Commission as of the 2015 Calculation Date are subject to the 2015 broker-dealer accounting support fee.

6. How can my company dispute its share of the broker-dealer accounting support fee?

PCAOB Rule 7103(c) allows a broker or dealer that disagrees with the class, as defined in PCAOB Rule 7102(a), in which it was placed for billing purposes or with the calculation by which its share of the fee was determined to petition the Board for a correction. A petition must: (i) include an explanation of why the broker or dealer believes the classification or calculation was erroneous, (ii) be in writing, and (iii) be received on or before the 60th day after the initial invoice is sent, or within such longer period as the Board allows for good cause shown. The Board will notify the broker or dealer of its decision on the petition in writing.

7. When is payment due?

PCAOB Rule 7104(a) states that "payment shall be due on the 30th day after the invoice is sent" unless the Board directs otherwise. Generally, the invoice date is the date on which the invoice was sent. For 2015, the invoice date was September 30, 2015, which means that payment is due on October 30, 2015.

If payment is not received by October 30, 2015, interest shall accrue at a rate of 6 percent per annum on the past-due amount.

Broker-Dealer-Specific FAQs

8. I believe the PCAOB's calculation of the average, quarterly tentative net capital amount for my company should be based on tentative net capital amounts not reported on my company's quarterly FOCUS reports. If I provide that data to the PCAOB, may I have my company's share of the broker-dealer accounting support fee recalculated using that data?

No. The Board uses tentative net capital reported by brokers and dealers on their quarterly FOCUS reports. This data provides a common basis upon which to determine the combined average, quarterly tentative net capital amount of all brokers and dealers.

9. I believe the PCAOB's calculation of the average, quarterly tentative net capital amount for my company should be based on the monthly tentative net capital amounts instead of the quarterly amount reported on my FOCUS reports. If I provide that data to the PCAOB, may I have my company's share of the broker-dealer accounting support fee recalculated using that data?

No. Under the PCAOB's funding rules, the average, quarterly tentative net capital for all brokers and dealers is based on the average, quarterly tentative net capital amount reported by each broker or dealer and not the monthly tentative net capital amount. This data provides a common basis upon which to determine the combined average, quarterly tentative net capital amount of all brokers and dealers.

10. My company ceased being a "broker" or "dealer" after the 2015 Calculation Date. Does my company still have to pay its share of the broker-dealer accounting support fee?

Yes. Under the PCAOB's funding rules, if your company meets the definition of "broker" or "dealer" as of the 2015 Calculation Date, your company is subject to the broker-dealer accounting support fee. The fact that your company ceased to be a "broker" or "dealer" after that date does not relieve your company of its responsibility for a share of the broker-dealer accounting support fee.

11. My company ceased being a "broker" or "dealer" before the 2015 Calculation Date. Does my company still have to pay its share of the broker-dealer accounting support fee?

No. Under the PCAOB's funding rules, if your company meets the definition of "broker" or "dealer" as of the 2015 Calculation Date, your company is subject to the broker-dealer accounting support fee. If you believe that your company was not a "broker" or "dealer" on that date and, thus, received an invoice in error, please contact the PCAOB at BillingFAQ@pcaobus.org.

Outstanding Balance Status FAQs

12. What do the PCAOB's rules require of an auditor with respect to a broker's or dealer's share of the broker-dealer accounting support fee?

PCAOB Rule 7104(b)(1) provides that a registered public accounting firm generally is prohibited from (i) signing an unqualified audit opinion with respect to a broker's or dealer's financial statements, (ii) issuing a consent to include an audit opinion issued previously, or (iii) signing a document, report, notice, or other record concerning procedures or controls of any broker or dealer required under the securities laws unless the registered public accounting firm has ascertained that the broker or dealer has no outstanding past-due share of the broker-dealer accounting support fee, or has a petition pursuant to PCAOB Rule 7103(c) pending.

13. Are there any exceptions to the auditor prohibitions under PCAOB Rule 7104(b)(1)?

There are three exceptions.

First, as noted above, if a broker or dealer has a petition for correction pending as to that broker's or dealer's outstanding share of the broker-dealer accounting support fee, PCAOB Rule 7104(b)(1) does not prohibit a registered public accounting firm from (i) signing an unqualified audit opinion with respect to a broker's or dealer's financial statements, (ii) issuing a consent to include an audit opinion issued previously, or (iii) signing a document, report, notice, or other record concerning procedures or controls of any broker or dealer required under the securities laws.

Second, PCAOB Rule 7104(b)(2) creates a one-time exception to take account of a situation in which a broker or dealer may have a past-due share of the broker-dealer accounting support fee – including possibly through mistake, inadvertence, or confusion – at a time when the broker or dealer needs the audit report to submit a report to, or make a filing with, the Commission. To avoid unnecessarily preventing brokers and dealers in these situations from submitting a report to or making a filing with the Commission, PCAOB Rule 7104(b)(2) creates a one-time, time-limited exception to the prohibitions in PCAOB Rule 7104(b)(1).[2] This exception may be invoked only once per assessment.

Third, until further notice, the Board will not enforce PCAOB Rule 7104(b)(1) against a registered public accounting firm that (i) signs an unqualified audit opinion with respect to a broker's or dealer's financial statements, (ii) issues a consent to include an audit opinion issued previously, or (iii) signs a document, report, notice, or other record concerning procedures or controls of any broker or dealer required under the securities laws with respect to a broker or dealer whose outstanding past-due share of the broker-dealer accounting support fee is less than $50.

14. If a broker or dealer has paid its past-due share of the broker-dealer accounting support fee but not accrued interest, may an auditor sign an unqualified opinion?

No. Interest, which accrues from the date payment is past due, represents the time value of the share of the broker-dealer accounting support fee that should have been paid and is therefore treated, for purposes of PCAOB Rule 7104, as part of the assessed share of the broker-dealer accounting support fee. Accordingly, unless one of the exceptions described in the answer to Question 13 applies, an auditor may not sign an unqualified audit opinion with respect to a broker's or dealer's financial statements.

15. How may an auditor ascertain that a broker or dealer has no outstanding past-due share of the broker-dealer accounting support fee?

A registered public accounting firm may ascertain that a broker or dealer has no outstanding past-due share of the broker-dealer accounting support fee by obtaining a representation from the broker or dealer. See Note 1 to PCAOB Rule 7104(b). A registered public accounting firm may also obtain an affirmation from the PCAOB staff that no past-due share of the broker-dealer accounting support fee is outstanding either by contacting the PCAOB staff by phone at 1-866-606-3982 (Business Days: 9:00 a.m. to 5:00 p.m. ET) or by email at Confirm@pcaobus.org.

In addition, the PCAOB posts a list of brokers and dealers that have no outstanding past-due share of the broker-dealer accounting support fee, which is available at http://pcaobus.org/About/Ops/Documents/Support%20Fee/BDs_Paid.pdf.

16. Can an auditor rely on management's representation to determine that it can sign an unqualified audit report?

Yes. If management of a broker or dealer represents that the broker or dealer has no outstanding past-due share of the broker-dealer accounting support fee, an auditor may sign an unqualified audit report with respect to the broker's or dealer's financial statements. In such situations, the registered public accounting firm need not also obtain an affirmation from the PCAOB staff that no past-due share of the broker-dealer accounting support fee is outstanding. The fact that a broker or dealer is not on the PCAOB's web site list of brokers and dealers that have no outstanding past-due share of the broker-dealer accounting support fee is not, in and of itself, a reason for a registered public accounting firm to believe that a broker's or dealer's representation is inaccurate.

17. Can an auditor rely on the PCAOB's list of brokers and dealers with no outstanding past-due share of the broker-deal accounting support fee to determine that the prohibitions in Rule 7104(b) do not apply?

Yes. A registered public accounting firm may take the inclusion of a broker or dealer on the PCAOB's list of brokers and dealers with no outstanding past-due share of the broker-deal accounting support fee as an indication that the broker or dealer has no outstanding past-due share of the broker-dealer accounting support fee for purposes of PCAOB Rule 7104(b).

18. If a broker or dealer is not on the list of brokers and dealers with no outstanding past-due share of the broker-dealer accounting support fee on the PCAOB's web site, does that mean it has a past-due share of the broker-dealer accounting support fee?

Not necessarily. Many brokers and dealers are allocated a share of the broker-dealer accounting support fee equal to $0 under the Board's funding rules and, therefore, would not be on this list even though they have no outstanding past-due share of the broker-dealer accounting support fee. In addition, a period of time may pass between when a payment is received by the PCAOB and when the list is updated to reflect that payment.

19. If a broker or dealer has received an invoice for a share of the broker-dealer accounting support fee but payment is not yet due (payment is due on the 30th day after the invoice is sent), may its auditor sign an unqualified audit report for that broker or dealer?

Yes, so long as there is no past-due share outstanding from a prior year. If a broker's or dealer's share of the broker-dealer accounting support fee is not yet due, then the broker or dealer has no outstanding past-due share of that year's broker-dealer accounting support fee. The due date for an assessed share of the 2015 broker-dealer accounting support fee is October 30, 2015.

[1] The term "broker" is defined in Section 110 of the Act as a broker (as defined in Section 3(a)(4) of the Securities Exchange Act of 1934 ("Exchange Act")) that is required to file a balance sheet, income statement, or other financial statement under Section 17(e)(1)(A) of the Exchange Act, where such balance sheet, income statement, or financial statement is required to be certified by a registered public accounting firm. See also PCAOB Rule 1001(b)(iii). The term "dealer" is defined also in Section 110 of the Act as a dealer (as defined in Section 3(a)(5) of the Exchange Act) that is required to file a balance sheet, income statement, or other financial statement under Section 17(e)(1)(A) of the Exchange Act, where such balance sheet, income statement, or financial statement is required to be certified by a registered public accounting firm. See also PCAOB Rule 1001(d)(iii).

[2] If this exception is invoked, the registered public accounting firm shall submit to the Board a notice of the signing of the opinion or issuance of the consent no later than the next business day after the filing is made with the Commission. The notice must be submitted electronically by email to Rule7104Stay@pcaobus.org. This exception shall continue no longer than 15 business days after the earlier of the date of the notice's submission or the filing of the report with the Commission. See PCAOB Rule 7104(b)(2) and Note 2 to PCAOB Rule 7104(b) for more information. The exception provided by PCAOB Rule 7104(b)(2) does not in any way modify the broker's or dealer's legal obligation to pay its assessed share of the broker-dealer accounting support fee.