Attestation Standard No. 1

   

Examination Engagements Regarding Compliance Reports of Brokers and Dealers

Appendix A—Definitions

A1.     For purposes of this standard, the terms listed below are defined as follows:

A2.     Deficiency in Internal Control Over Compliance—A Deficiency in Internal Control Over Compliance exists when the design or operation of a control does not allow the management or employees of the broker or dealer, in the normal course of performing their assigned functions, to prevent or detect on a timely basis non-compliance with 17 C.F.R. § 240.15c3-1, § 240.15c3-3, § 240.17a-13 or any rule of the designated examining authority of the broker or dealer that requires account statements to be sent to the customers of the broker or dealer.1/

A3.     Internal Control Over Compliance—Internal controls that have the objective of providing the broker or dealer with reasonable assurance that non-compliance with 17 C.F.R. § 240.15c3-1, § 240.15c3-3, § 240.17a-13, or any rule of the designated examining authority of the broker or dealer that requires account statements to be sent to the customers of the broker or dealer, will be prevented or detected on a timely basis.2/

A4.     Material Weakness—A Material Weakness is a deficiency, or a combination of deficiencies, in Internal Control Over Compliance such that there is a reasonable possibility that non-compliance with 17 C.F.R. §240.15c3-1 or 17 C.F.R. § 240.15c3-3(e) will not be prevented or detected on a timely basis or that non-compliance to a material extent with 17 C.F.R. §240.15c3-3, except for paragraph (e), 17 C.F.R. § 240.17a-13, or any rule of the designated examining authority of the broker or dealer that requires account statements to be sent to the customers of the broker or dealer will not be prevented or detected on a timely basis.3/

1/The definition of "Deficiencies in Internal Control Over Compliance" is consistent with the same term in paragraph (d)(3)(iii) of SEC Rule 17a-5.

2/The definition of "Internal Control Over Compliance" is consistent with the same term in paragraph (d)(3)(ii) of SEC Rule 17a-5.

3/The definition of a "Material Weakness" is consistent with the same term in paragraph (d)(3)(iii) of SEC Rule 17a-5.