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Financial Services · Series 27

FINRA Series 27 – Financial and Operations Principal Exam Practice Test

The FINRA Series 27 – Financial and Operations Principal Exam concerns the financial controls that support a broker-dealer’s books, liquidity, and operational obligations. The available practice questions sample accounting judgments, cash and investment risk, securities-position reconciliation, custody controls, and regulatory liability calculations.

Exam overview

Exam providerFinancial Industry Regulatory Authority
Exam codeSeries 27
CategoryFinancial Services

About the FINRA Series 27 – Financial and Operations Principal Exam

Financial and operations principals need to assess whether accounting records accurately reflect obligations, including expenses spanning reporting periods and potential tax liabilities. They also need to evaluate cash availability and concentration risk when funds may be required for near-term payments. Reconciliations between a firm’s records and positions held through clearing organizations or depositories help identify discrepancies relevant to proprietary holdings and customer securities obligations. Other practical skills include testing changes to recurring financial reports, maintaining accountability for activity performed through shared system accounts, assessing vendor recovery evidence for critical processing, and identifying liabilities in an aggregate indebtedness computation. These tasks connect financial reporting, internal controls, custody, and liquidity management: a sound decision depends on reliable records and evidence that the firm can meet its obligations.

Sample Practice Questions

Review a selection from this exam's published US Practice Tests practice bank.

Question 1

A broker-dealer is evaluating a short-term investment for funds that may be needed to meet near-term obligations. Which consideration is most relevant to its suitability for liquidity management?

  1. AWhether the investment can be converted to cash promptly with limited price uncertainty and operational delay
  2. BWhether its stated yield is higher than every alternative, regardless of maturity
  3. CWhether its historical return exceeds the firm's annual revenue growth
  4. DWhether it has the longest available term to reduce reinvestment decisions
Show answerCorrect answer: A

Liquidity planning focuses on the timing and reliability of access to cash, including the possibility of value changes and transaction delays. A high yield or long maturity does not by itself make an investment suitable for near-term liquidity needs.

Question 2

A broker-dealer uses a shared service account to run a critical financial application. Which practice best supports accountability and control over activity performed through that account?

  1. ARestrict its use, protect credentials, and maintain logs that identify individual activity where practicable
  2. BShare the password with all staff who may need access
  3. CDisable activity logging to reduce system storage use
  4. DPermit unrestricted access because the account is used for operations
Show answerCorrect answer: A

Shared accounts can weaken attribution. Restricting use, safeguarding credentials, and maintaining logs that associate actions with individuals where practicable improve accountability and help detect unauthorized activity.

Question 3

A broker-dealer's management learns that a material tax liability may have been omitted from its financial records. What is the soundest accounting response?

  1. AEvaluate the obligation using available evidence and record or disclose it as required by the applicable accounting framework
  2. BIgnore it until the tax authority issues a final demand
  3. COffset it against an unrelated asset without documentation
  4. DRemove the relevant tax records so they cannot be misinterpreted
Show answerCorrect answer: A

Management should assess the nature and likelihood of the obligation using available facts and apply the relevant accounting requirements for recognition and disclosure. Waiting automatically for a final demand or making an unsupported offset can produce materially misleading records.

Question 4

A broker-dealer receives a vendor invoice for services that span two accounting periods. What is the appropriate general accounting approach?

  1. AAllocate expense to the periods in which the services are received, consistent with the firm's accounting policy
  2. BCharge the entire amount to the later period regardless of when services were provided
  3. CRecord no expense until the invoice is paid
  4. DTreat the invoice as a customer asset
Show answerCorrect answer: A

Under accrual accounting, expenses are generally recognized in the period in which the related services are received, subject to the applicable accounting framework and consistent policy. Payment timing alone does not determine when an expense is recognized.

Question 5

A firm changes the logic used to generate a recurring financial report. Which practice most directly supports confidence that the revised report remains accurate?

  1. ATest the revised logic against known results or independently verified data before relying on the report
  2. BAssume the output is correct because the report ran without an error message
  3. CDelete the prior version of the report and all documentation of the change
  4. DHave the developer approve the change without any separate review or testing
Show answerCorrect answer: A

Testing changed report logic against known or independently verified information helps identify errors before the report is used. A process completing successfully does not establish that its calculations or data mapping are correct.

Question 6

A broker-dealer holds securities for customers in street name through a securities depository. Which control most directly helps establish that the firm can meet its securities custody obligations?

  1. AReconciling securities records and control locations, and promptly investigating differences
  2. BReviewing only the market value of the aggregate position once a year
  3. CConfirming that customer statements were mailed on schedule
  4. DComparing commission revenue with the prior month
Show answerCorrect answer: A

Reconciliation of books and records to depository or other control-location information helps identify shortages, recording errors, or misplaced securities that could impair the firm’s ability to meet custody obligations.

Question 7

A broker-dealer maintains proprietary securities in a position account at a clearing organization. What is the principal purpose of reconciling that account to the firm's records?

  1. ATo confirm recorded positions agree with an independent source and identify discrepancies for investigation
  2. BTo determine the securities' tax basis for every customer account
  3. CTo replace the firm's daily net capital computation
  4. DTo establish that the securities are eligible for customer reserve credit
Show answerCorrect answer: A

Reconciling a position account to an independent statement helps detect missing, misstated, or unauthorized positions. It does not replace other regulatory computations or establish unrelated tax or reserve treatments.

How to use this practice test

The free practice bank contains 50 published questions. Each session presents up to 20 questions selected at random and shows results after the session. Use the questions to check how you apply accounting, reconciliation, liquidity, custody, and control concepts to broker-dealer scenarios; review any missed items by identifying the financial record, obligation, or control at issue.

Preparation tips

  • For accrual examples, distinguish the period in which a service is received from the timing of the vendor’s invoice or payment.
  • Practice tracing a securities position from a broker-dealer’s books to the relevant clearing or depository record, and identify what a mismatch could indicate.
  • When comparing short-term investments or bank-cash arrangements, assess access to funds, concentration exposure, and the firm’s near-term obligations.
  • For financial-report changes, identify controls that test the revised logic and verify that output remains complete and accurate.
  • Work through liability examples by asking whether an obligation belongs in the aggregate indebtedness computation, rather than relying only on its label.
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