On August 29, the Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (Division) issued a no-action letter confirming that it will not recommend enforcement action against a futures commission merchant (FCM) if the accountant’s audit opinion included in the FCM’s annual financial report does not include “critical audit matters” (or the absence thereof) as required by the Public Company Accounting Oversight Board (PCAOB) standards. CFTC regulations generally require accountants engaged in audits of FCMs to register with the PCAOB and to conduct FCM audits in accordance with PCAOB standards. In 2017, the PCAOB adopted AS 3101, which requires an auditor registered with the PCAOB to communicate any critical audit matters in its audit report related to the financial statements of public companies. “Critical audit matters” include matters that are communicated or required to be communicated to the audit committee and: (1) relate to the accounts or disclosures that are material to the financial statements; and (2) involve especially challenging, subjective or complex auditor judgment.
Under its existing regulatory authority, the PCAOB explicitly excluded SEC-registered broker-dealers reporting under Securities Exchange Act Rule 17a-5 from the critical audit matters provisions of AS 3101. However, the PCAOB does not have regulatory authority with respect to CFTC registrants and did not address the applicability of critical audit matters requirements to the audits of FCMs. Consequently, absent relief from the CFTC or its staff, FCM audits must comply with the critical audit matters requirement.
In granting no-action relief, the Division noted that customer protection regulations already require FCMs to provide significant disclosures to customers, including relevant information about the financial condition, operation and audits of an FCM (similar to broker-dealer customer protection requirements). The Division also noted that the benefits of applying the critical audit matters requirements to FCM audits are minimal, considering the additional compliance costs.
CFTC Letter No. 18-21 is available here.