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 January 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 December 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 US 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:


  • 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


An interesting element of the implementation of ASC Topic 606 is that the effective date for PBEs occurs prior to the effective date for non-PBEs—something parent companies of broker-dealers must address in their implementation plan.

The AICPA task force hasn’t yet addressed how a non-PBE parent company of a broker-dealer should deal with different accounting policies that exist at its PBE subsidiary and at the parent-company level. While this issue remains unresolved, parent companies of broker-dealers can still benefit from determining whether early adoption of this standard at the consolidated reporting level is prudent in their circumstances. In addition to the FASB ASU that adopted the PBE definition, a parent company should consider the technical question and answer published by the AICPA in October 2017.    


A few items are excluded from the scope of the new standard:

  • Recognition of realized and unrealized gains and losses on proprietary transactions involving the purchase and sale of financial instruments
  • Interest and dividend income on financial instrument contracts held by broker-dealers

Resolved Implementation Issues

A number of identified implementation issues have been resolved by the task force and included in the AICPA’s Revenue Recognition Audit and Accounting Guide:

Trade-Based Commission Income

Trade-based commission income is earned by providing trade facilitation, execution, clearance and settlement, custody, and trade administration services to customers. Under the new standard, trade-date revenue recognition remains appropriate in most cases.

This is because trade execution of the performance obligation is satisfied at a point in time—rather than over time—and as the customer obtains control of the service. On the trade date, the customer has obtained control of the service in that it can direct the use of and obtain substantially all of the remaining benefits from the asset that comes from the trade-execution performance obligation.

Commission Income from Custody Services

Under ASC Topic 606, performance obligations for custody services are generally satisfied over time, and therefore, require further contract analysis on a case-by-case basis.

Trade execution and custody services—even if they’re in the same written contract with a customer—may represent two different contracts. The AICPA’s Audit and Accounting Guide on Revenue Recognition clarifies this point and requires an analysis of whether a material right exists on behalf of the broker-dealer’s customer. Accordingly, there may be two different performance obligations and two potentially different revenue recognition results. These types of agreements require special consideration by broker-dealers.

Costs Associated with Investment Banking Advisory Services

With the new revenue recognition standard, costs associated with investment banking advisory services may require presentation on a gross cost basis, which could differ from current practice.   

Goods or services, such as legal advice, used to provide underwriting services are employed over the course of their delivery and are typically combined with other services to provide the underwriting service. Based on this, the underwriter would generally present its share of revenues and expenses gross, rather than net. This may impact employee compensation agreements.

Next Steps

It’s prudent for brokers and dealers in securities to begin assessing the impact of this standard on their financial reporting and internal control systems as soon as possible. This early focus can help broker-dealers:

  • Maintain compliance with monthly or quarterly FOCUS filings, which are required to be prepared under GAAP
  • Comply with books and records provisions
  • Identify volatility in reported earnings

We’re Here to Help

If you’d like to learn more about how the new revenue recognition standard may affect your organization, contact your Moss Adams professional.

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