Transcript Plan Audits – Working with the CPA

Plan Audits –
Working with the CPA
CariAnn J. Todd, CPA
CariAnn J. Todd, CPA
Manager
BeachFleischman, PC
Tucson, AZ
[email protected]
www.beachfleischman.com
OVERVIEW
• The Audit Requirement
• What is an Audit?
• A Typical Audit
• Corrections
• Keys to Success
• Finding the right CPA
THE AUDIT REQUIREMENT
THE AUDIT REQUIREMENT
• Follow the decision tree – 80/120 Rule
• Plan ahead if your BOY participant count is
around 100
• Process distributions timely to get terminated
participants out when possible
• Applies to 403(b) Plans for the 2009 Form 5500
THE AUDIT REQUIREMENT
• The “other” audit requirement:
Small plans that have less than 95% of their
assets as “qualifying plan assets” AND don’t
have an ERISA Sec 412 fidelity bond covering
100% of the value of the nonqualifying portion
THE AUDIT REQUIREMENT
THE AUDIT REQUIREMENT
• What are qualifying plan assets?
▫ Assets held by certain regulated financial
institutions
▫ Shares issued by a registered investment
company (mutual funds)
▫ Investment and annuity contracts issued by an
insurance company
▫ Qualifying employer securities
▫ Participant loans
• http://www.dol.gov/ebsa/faqs/faq_auditwaiver.html
THE AUDIT REQUIREMENT
• Short period exception:
If the first plan period is a short period of 7
months or less, and an audit is otherwise
required, the audit of the short period can be
deferred until the second period (the first full
year).
• The initial audit will then be a dual period
audit, which is more cost effective.
THE AUDIT REQUIREMENT
Take-a-ways:
• Plan ahead
• Notify the plan ASAP when audit is required
WHAT IS AN AUDIT?
• The objective is for the auditor to express an
opinion as to whether the plan’s financial
statements are presented fairly, in all material
respects, and in conformity with generally
accepted accounting principles (GAAP).
• The auditor plans and performs the audit to
obtain reasonable assurance that material
misstatements are detected.
WHAT IS AN AUDIT?
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Gain an understanding of the plan
Gain an understanding of internal controls
Plan the engagement
Audit balances (investments, receivables, etc.)
Audit participant data and allocations
Audit plan obligations and benefit payments
Consider DOL/ERISA compliance
Report on the financial statements
WHAT IS AN AUDIT?
• Auditing is “governed” by generally accepted
audited standards (GAAS) – issued by the AICPA
Auditing Standards Board (or PCAOB)
• They are general in nature
• Each auditor may approach EBP audits
differently, there is no “right way”
WHAT IS AN AUDIT?
• Materiality – plan specific thresholds for
acceptable variance
• Sampling & Confirmations
• Very Compliance Oriented
• Questions, Questions, Questions
A Typical Audit
Planning:
• Gathering of documents – plan amendments,
contracts, minutes, etc.
• Get reporting package from the TPA
• Inquiries of client, TPA and trustee/custodian
• Analytical review of data
• Consideration of controls (plan and TPA)
A Typical Audit
Fieldwork:
• Review of participant records – test census data
• Testing of contributions, deposit timeliness
• Testing of benefit payments, loans
• Testing of expenses, liabilities
A Typical Audit
Fieldwork (con’t):
• Testing of Investments – full scope audit
requires testing of fair values & activity
• Limited scope audit – only applies to
Investments – has no impact on procedures in
other areas – allows auditor to rely on
investment balances certified
A Typical Audit
A Typical Audit
Fieldwork (con’t)
• Testing of supplemental schedule data
• Assistance with drafting of financial statements
and footnotes
• Review of the 5500
A Typical Audit
Initial Audits (first time a plan is audited)
• Gathering of historical documents
• May need 5500s back to plan inception
• Prior year reporting package
• A lot more questions
A Typical Audit
• The Auditor asked me if we have a SAS70, what
does that mean?
• SAS70 – “Report on Controls Placed in Operation
and Tests of Operating Effectiveness”
• Essentially it is an “audit” of the internal
controls at a service organization
A Typical Audit
• Existence of a SAS70 allows an auditor to
reduce their substantive testing in some areas
• Lack of a SAS70 means an auditor may want to
document controls at your organization
• Onsite visit or lots of questions
Corrections
• Audit testing may identify situations where the
plan document has not been followed
• Auditor will generally determine the
pervasiveness of the error identified
• Auditor will generally propose an adjusting
journal entry to properly state plan balances
Corrections
• Plan and its TPA are responsible for correction
(precise amounts, correction method, etc.)
• Auditor is responsible for proper reporting on
supplemental schedules
• Correct the current year, not just the year
under audit
Keys to Success
• Communication
• Communication
• Communication
Keys to Success
• Ask for a document request letter from the
auditor up front
• Discuss the letter with Plan representative and
delegate responsibility
• Establish a timeline with the Plan
representative and the auditor
Keys to Success
• Reasonable turnaround of requested data
• Reasonable response time to email/phone
• Patience
Keys to Success
• Please don’t compare our requests to the
requests of other firms
• Be respectful and expect the same
• Let the Plan representative know of difficulties
you experience with the auditor
Finding the Right CPA
Advice you can give your clients:
• Fiduciary responsibility is key here
• The plan should send out an RFP to 2-3 firms
• Consider the reputation/expertise of the firm
• Fees should not be the only consideration
Finding the Right CPA
• AICPA has established the Employee Benefit
Plan Audit Quality Center http://ebpaqc.aicpa.org/
• Resources for Plan Sponsors
http://ebpaqc.aicpa.org/Resources/Plan+Sponsor+Resource+Center/
• List of Center Members
• Guide to audit quality and auditor selection
QUESTIONS?