Chapter 3 Practice Question Answers
- 1. Answer: C. While FOCUS reports, like financial statements, provide balance sheet, income statement, net capital, and related operational information, the organizational chart is likely to be found in the risk assessment records. An organizational chart is a visual description of a company’s management structure. It is a hierarchical map showing the roles, responsibilities, and relationships of its management team and how information is intended to flow within that structure.
- 2. Answer: D. Quarterly FOCUS reports are submitted on Form X-17A-5 Part II within 17 business days after the end of the calendar quarter and within 17 days after the end of its fiscal year if that date is not the end of a quarter.
- 3. Answer: A. All firms must file a yearly financial report that has been audited by an independent public accountant. The report, known as the Annual Audited Report (Form X-17A-5 Part III), must include a Statement of Financial Condition, a Statement of Income, a Statement of Changes of Financial Condition, and supporting schedules. The accountant statement is a separate form that must be filed no later than December 10 of each year. The statement must be dated no later than December 1.
- 4. Answer: D. A material weakness is a deficiency in a broker-dealer’s controls that could reasonably prevent the discovery of inaccuracies in its reporting statements. If the accountant finds a material weakness, it must notify the firm’s chief financial officer.
- 5. Answer: C. Because carrying dealers maintain custody of their customers’ assets, they must file a compliance report. Introducing broker-dealers do not have custody of their customers’ assets, so they file an exemption report. The purpose of these reports is to help independent public accountants identify the custody practices of broker-dealers and to safeguard investors’ assets.
- 6. Answer: A. Although an introducing broker-dealer does no