WHAT TO EXPECT FROM YOUR AUDITOR Derrick Strosnider, CPA, Partner Art Budich, CPA, Partner. May 21, 2017

Transcription

1 WHAT TO EXPECT FROM YOUR AUDITOR Derrick Strosnider, CPA, Partner Art Budich, CPA, Partner May 21, 2017

2 Purpose of Session and Key Takeaways Better prepared to have engaging conversation with your auditor Understand the audit process and deliverables Understand responsibilities of the auditor, management and trustees Understand auditor communications How to maximize your relationship with your auditor 2

3 Question 1: What is the purpose of an audit? a) Provide absolute assurance the financial statements are correct. b) Determine if there was any fraud present in the organization. c) Provide reasonable assurance the financial statements are free of material misstatement. d) Provide assurance the Plan complied with all applicable laws and regulations. 3

4 Answer: The purpose of an audit is to: Determine the financial statements are free of material misstatement. Determine the financial statements are presented in accordance with GAAP (Generally Accepted Accounting Principles)as applicable to governmental organizations Statements adhere to reporting requirements established by GASB (Governmental Accounting Standards Board) 4

5 Auditor s Responsibilities Internal Control and Fraud Auditors are responsible for: 1. Gaining an understanding of an organization and it s internal control. 2. Designing audit procedures that are appropriate to address the risk of the financial statements being materially misstated whether by error or fraud Auditor s are NOT responsible for: 1. Detecting fraud 2. Expressing an opinion on the organization s internal control 5

6 Components of Audited Financial Statements Report of Independent Auditor Management Discussion and Analysis Statement of Fiduciary Net Position Statement of Changes in Fiduciary Net Position Notes to Financial Statements Required Supplementary Information Schedule of Net Pension Liability (Total Liability-Position) Schedule of Changes in Net Pension Liability/Asset and Related Ratios and notes Schedule of Contributions and required notes Schedule of Investment Returns Other Supplementary Information 6

7 Who is GASB The Governmental Accounting Standards Board (GASB) is an independent organization that establishes and improves standards of accounting and financial reporting for U.S. state and local governments. Standards go through a rigorous process including periods of public review and comment Determines if standard is needed and drafts proposed standard for comment then issues the standard Committee representatives are a diverse group of stakeholders 7

8 New GASB Standards GASB 67 Financial Reporting for Pension Plans Revises existing standards for pension plans. GASB 68 Accounting and Financial Reporting for Pension Plans Revises existing standards related to the reporting by state and local governments for pensions. GASB 72 Fair Value Measurement and Application Revises financial statement disclosures for pension plans 8

9 Question 2 Accounting standards specific for benefit plans a) Are well established and rarely changed. b) Were updated last about 10 years ago. c) Have experienced significant change but only need to be understood by the auditor. d) Have experienced significant change that have required a high amount of education and coordination between management, actuaries and plan auditors. 9

10 Auditor s Responsibilities As auditors, our responsibility is the expression of an opinion on the financial statements, prepared by management, based on our audit. Types of opinions: 1. Unmodified highest level of assurance 2. Modified (qualified, adverse, disclaimer) 10

11 Trustee Responsibilities Oversee the reliability of financial reporting, including effectiveness of internal control Understand significant risks and exposures As a Trustee your primary responsibility is to operate the plan: In accordance with the plan s governing documents In a prudent manner In the best interest of the plan participants and their beneficiaries Review and discuss financial statements Engage external auditors (if independently required) 11

12 Management s Responsibilities Preparation and presentation of the financial statements. Design, implementation and maintenance of internal control as well as user controls over service providers Maintenance of the books, records and other documentation necessary to support the amounts and disclosures in the financial statements. Ensure compliance with applicable laws and regulations 12

13 Questions 3 Your auditor is required to: a) Draft the financial statements and notes. b) Gain an understanding of internal control sufficient to assess the risk of misstatement of the plan s financial statements. c) Express an opinion on the plan s internal control. d) All of the above. 13

14 Question 4: As a Trustee, what are your responsibilities? a) Establish and maintain internal control procedures. b) Administering the plan for the benefit of the participants. c) Reviewing reports prepared by the plan s service providers. d) All of the above 14

15 Audit Process An audit is an examination of the books and records of the plan. This includes Gaining an understanding of the plan s internal control. Assessing the risks present in the plan. Performing tests: Substantive and control Testing of transactions, confirmations with third parties, and examinations of source documents. 15

16 Typical audit procedures Assess Risk and Design Plan Understanding internal controls and process Understanding the environment Regulatory and industry Fraud Risks Interviews Walk throughs Evaluation of third party controls 16

17 Investments Investments Confirmations with investment custodians and managers. Evaluation of compliance with investment guidelines established by the Trustees. Testing of valuation of investments Investment Management Fees Alternative Investments Existence and valuation 17

18 Typical audit procedures (continued) Contributions Tests of contributions Confirmations with 3 rd parties Audits of employer records Benefits Tests of benefit payments for compliance with plan governance documents. Reasonableness tests on population data. Comparative and predictive tests based on the population. 18

19 Typical audit procedures (continued) Eligibility and participant data Enrollment of participants is performed in accordance with the plan document. Changes to the data are authorized and properly maintained/protected Information communicated to the actuary is complete Actuary valuation Evaluate the assumptions and estimates used in the valuation to determine they are reasonable given the plan, and outside factors. GASB requirements 19

20 Typical audit procedures (continued) IT Considerations Evaluation of IT sufficient to gain an understanding of internal control and determine if there are risks to the financial statements Evaluation of estimates made by management Pension liabilities Investment valuation 20

21 Question 5: Each of the following are estimates within a typical pension plan financial statement except: a) Fair value of alternative investments. b) A plan s pension liability at a given time. c) Mortality rates used in actuary reports. d) Cash position at a point in time. 21

22 Common Third Parties Investment custodian Investment advisor/manager Recordkeeper Benefit processor 22

23 SOC Reporting Service Organization Controls Report Meet the needs of entities using service organizations and their auditors Type 1 Type 2 Discuss managements evaluation of the SOC-1 23

24 Question 6: What is a SOC1 Report? a) Supplemental schedule to the audit. b) A report to management addressing deficiencies noted during the audit. c) Report on the controls over a service organization, such as a custodian. d) Audit communication regarding the plan for the audit. 24

25 Auditor communications 1. Beginning of the audit: Management responsibility Auditor responsibility Planned scope and timing of the audit. 2. During the audit: Communication of significant findings and/or issues Difficulties, if encountered, with management or third parties. 3. End of the audit: Communication of internal control issues Uncorrected and/or material audit adjustments Other significant findings or issues. 25

26 Common Audit Deficiencies Insufficient testing related to following audit areas: Investments Contributions Benefit distributions Eligibility 26

27 THANK YOU! 7501 Wisconsin Ave., Suite 1200 West Bethesda, MD phone fax toll-free calibrecpa.com

28 Questions?