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This AICPA Practice Aid updates the previous edition of Audits of Futures Commission Merchants, Introducing Brokers, and Commodity Pools and provides guidance for audits of futures commission merchants, introducing brokers, and commodity pools (collectively referred to as commodity entities). This Practice Aid is intended to provide practitioners with nonauthoritative practical guidance related to the special matters unique to the regulatory, accounting, and auditing aspects of this industry. It includes an overview of the commodity industry, and a discussion of a commodity entity's functions, books and records, including regulatory recordkeeping requirements.
This Second Edition, prepared by the Commodity Practice Aid Task Force, has been revised to provide industry specific guidance for commodity entities. It includes exhibits containing both sample letters and sample reports, to assist independent accountants in reporting on the financial statements and other written assertions of commodity entities.
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Information Included in This Practice Aid
This practice aid is organized to complement the AICPA Audit and Accounting Guide Brokers and Dealers in Securities. The practice aid contains the following chapters:
Chapter 1, "Commodity Industry Overview." This chapter describes the participants in the commodity industry, including FCMs, IBs, commodity trading advisors, commodity pool operators and pools; commodity markets, including cash, forward, and futures markets; regulatory agencies; and exchanges, boards of trade, and other self regulatory organizations. It also describes various activities in which commodity entities engage.
Chapter 2, "Commodity Entity Functions, Books, and Records." This chapter provides a detailed discussion of the FCM's or IB's functions, books and records including (1) trade order processing, (2) customer account records, (3) clearance and settlement, (4) other specialized activities, (5) reconciliation and balancing, and (6) collateralized financings. It also discusses the commodity entity's regulatory recordkeeping requirements and tax information requirements.
Chapter 3, "Regulatory Considerations." This chapter contains an explanation of significant regulations, rules, and reporting requirements that are relevant to an FCM and IB.
Chapter 4, "Financial Statements of Futures Commission Merchants and Introducing Brokers, Presentation and Classification." This chapter describes the accounts generally reported on an FCMs or IBs financial statements and provides illustrative financial statements, including statements of financial condition, income or operations, changes in ownership equity, changes in liabilities subordinated to claims of general creditors, cash flows, supplementary schedules, and the related notes to the financial statements.
Chapter 5, "Auditing Considerations." This chapter provides a discussion of generally accepted auditing standards as applied to FCMs and IBs, issues related to specialized FCM and IB accounts, and an appendix providing audit assertions, audit objectives, and examples of tests of controls and substantive tests that are relevant to an FCM or IB.
Chapter 6, "Internal Control." This chapter provides a discussion of the auditor's understanding of internal control in a financial statement audit, including the five interrelated internal control components (that is, control environment, risk assessment, control activities, information and communication systems, and monitoring). The discussion covers internal controls and other related considerations that may be relevant to an FCM's or IB's specific activities.
Chapter 7, "Accounting Guidance." This chapter provides a discussion of the accounting model used by the industry, trade-date versus settlement-date accounting, and other financial statement items relevant to an FCM or IB.
Chapter 8, "Commodity Pools." This chapter provides guidance on items specifically relevant to a commodity pool's (1) functions, books, and records, (2) regulatory requirements, (3) financial statement presentation and disclosure, (4) auditing considerations, (5) internal controls, and (6) accounting. It provides illustrative financial statements, supplementary schedules and related notes to the financial statements, and an illustrative independent auditors report.
Exhibits. This set of exhibits provides several illustrative reports that should assist independent accountants in reporting on the financial statements (and other written management assertions) of an FCM or IB.
Glossary. This chapter describes many of the unique terms that are prevalent in the commodity industry.
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