Understanding the accounting implications of the new revenue recognition standard for brokers and dealers in securities

Brokers and dealers in securities will be required to adopt the new revenue recognition standard as early as Jan. 1, 2018, a change that will have far-reaching effects for their financial reporting and internal control systems.

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASC 606). This standard, along with subsequent amendments and clarifications issued by the FASB, impacts all brokers and dealers in securities and may change how these organizations recognize, measure, present, and disclose information about revenue.

Effective date

Brokers and dealers in securities are classified as public business entities (PBE), as defined in FASB ASU 2013-12, Definition of a Public Business Entity, because they file financial statements with the SEC.

PBEs are required to adopt the new revenue recognition standard for fiscal years beginning after Dec. 15, 2017 — including interim periods within those fiscal years. The net-capital calculations that brokers and dealers provide to their regulators on periodic Financial and Organizational Combined Uniform Single (FOCUS) filings are required to be performed under U.S. generally accepted accounting principles (GAAP), which will include ASC 606 when effective. For brokers and dealers with a calendar year-end, for example, the standard would be effective for the January 2018 FOCUS filing. For a June 30, 2018, fiscal year-end, the standard would be effective for the July 2018 FOCUS filing.

Ongoing implementation issues

The American Institute of Certified Public Accountants (AICPA) has established a task force to identify potential revenue recognition implementation issues for brokers and dealers:

In-process

• Selling and distribution fees by broker-dealers or distributors, which may be paid at the front-end, back-end, or structured as a combination
• Accounting for various costs incurred by broker-dealers and distributors
• Underwriting and related fee income
• Investment banking advisory fees
• Soft dollar revenues