EBPFAQ Introduction. Indiana Society of CPAs September 17, 2013 Concurrent Session 2: The EBP Market 2013 Address Common Questions

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1 Indiana Society of CPAs September 17, 2013 Concurrent Session 2: Loscalzo s Frequently Asked Questions In Employee Benefit Plan Loscalzo s 2012 Accounting And Auditing Template for PowerPoint Slides A SmartPros Ltd. Company (732) Gregory M. Clark, CPA, is an author and discussion leader for LOSCALZO ASSOCIATES LTD. and a Principal with the Business Compliance & Controls Group (BCCG) an accounting consulting firm specializing in employee benefit plan audits and compliance, internal controls auditing, consulting and assessments, and technical accounting training and consulting. With more than 30 years experience in the audit and business compliance field, Greg has participated in all aspects of employee benefit plan engagements, including plan audit and business risk assessments, plan internal control assessment and design, plan regulatory compliance, data retention management, and administrative contract c compliance. c BCCG provides technical c accounting and auditing consulting services, quality control reviews and effectiveness reviews and compliance assistance to CPA firms performing both general attest and employee benefit plan engagements throughout the United States. Greg is an internationally known speaker on the topics of employee benefit plans, technical accounting and auditing, operational auditing and internal controls assessment and evaluation, data retention management, organizational risk assessments and various other topics. Greg has worked with accountants and auditors from international companies throughout the world, many Fortune 500 companies, numerous local, regional, and national CPA firms, and for more than 35 State CPA societies. 1 EBPFAQ Introduction The EBP Market 2013 Address Common Questions 2 1

2 Accounting Literature ASC 960 Defined Benefit Plans ASC 962 Defined Contribution Plans ASC 965 Heath and Welfare Plans AICPA Practice Aid Alternative Investments ASC 820 ASU ASU ASU ASU ASU ASU SOC 1 (SSAE 16) EBP Audit and Accounting Guide New guide will contain Introduction and background Accounting and reporting guidance (both GAAP and FinREC recommendations) for DC, DB and H&W plans Included an ESOP section in DC chapter Unique accounting and auditing aspects for each type of plan Multiemployer plan considerations called out via practice tips Financial statement disclosures Added practice tips to each chapter Newly revised financial statements EBP Audit and Accounting Guide FinREC recommendation examples Investments Dividends and distributions reinvested Presentation of plan investments Master Trust arrangements Defined contribution plans Cash balances Corrective contributions/excess contributions Forfeitures Rollover contributions Presentation considerations for statement of changes in net assets Plan mergers New appendix Key roles, responsibilities, and plan provisions 5 2

3 2013 EBP Audit and Accounting Guide FinREC recommendation examples, continued Defined benefit plans Contributions receivable Funding waivers New appendix Key roles, responsibilities, and plan provisions Health & welfare plans Defining the reporting entity FSAs, HRAs and HSAs Contributions receivable Claims Postemployment and postretirement benefit obligations claims IBNR Several new appendices The annual health care process AND examples of H&W arrangements 6 Recently Issued Audit Guidance SAS 122 Audit Clarity Project SAS 123 Omnibus Statement on Auditing Standards SAS 126 Going Concern 7 SAS 122 Clarity Project Clarified Standards: Preface and Introduction General Principles and Responsibilities (AU ) Planning and Risk Assessment (AU ) Audit Evidence (AU ) Using the Work of Others (AU ) Audit Conclusions and Reporting (AU ) Special Considerations (AU ) 8 3

4 SAS 122 Clarity Project Significant Changes: Overall objectives Objectives included in each AU section New terminology New audit report format and language emphasizing management s and auditor s responsibilities Additional prohibitions imposed on the acceptance of an audit Emphasis-of-matter and other-matter report paragraphs 9 SAS 122 Clarity Project Significant Changes: Special purpose frameworks and contractual basis (AU 800) Performance materiality (AU 320) Using the work of a specialist (AU 620) Consideration of illegal acts and compliance with laws and regulations (AU 250) Auditing opening balances in initial audits (AU 510) Consideration of fraud in an audit (AU 240) Auditing fair value measurements (AU 540) 10 SAS 122 Clarity Project Significant Changes: Group engagement partner and group component auditor terminology and group audits (AU 600) Audit documentation(au 230) Communicating with those charged with governance (AU 260) Communicating internal control related matters (AU 265) Use of service organization (AU 402) 11 4

5 SAS 122 Clarity Project No Substantive Changes: Audit documentation Auditor s communications with those charged with governance Risk assessment standards External confirmations Analytical procedures Audit sampling Auditing accounting estimates Written representations Subsequent events 12 EBSA Enforcement Program Administered by the EBSA Office of the Chief Accountant (OCA) More than 9, 231 CPA firms performed more than 80,000 audits $5.5 trillion of plan assets are audited 64% are limited-scope audits 83 CPA firms performed more than 100 audits and completed 30,000 audits and audited $4.2 trillion in plan assets 9,148 CPA firms performed less than 100 audits and completed 50,000 audits and audited $1.3 trillion in plan assets 13 EBSA Enforcement Program Enforcement Focus High Risk Audit Engagements Multiemployer Plans Defined Benefit Pension Plans Defined Contribution Pension Plans Single Employer Defined Benefit pension Plans Health and Welfare Plans ESOPs 403(b) Plans Repeat Offenders 14 5

6 EBSA EBP Audit Best Practices Commitment to audit quality at all levels Dedicated EBP leadership Pre-issuance review process for new EBP partners Rigorous internal inspection process Extensive EBP-specific training Critical thinking throughout engagements Thorough, explanatory documentation Specialization of firm in the EBP industry Consistent application of firm tools by audit teams Significant, hands on leadership by firm s senior partners 15 EBSA Audit Weaknesses Noted Formulaic, check-the-box mentality Documentation not in conformity with SAS 103 No work with respect to admin expenses Insufficient work performed when specialists were utilized Inadequate evaluation of internal controls Failure to adequately assess risk of loss due to fraud Failure to challenge clients regarding potential delinquent participant contributions 16 EBSA Audit Weaknesses Noted Over-reliance on work performed by others, e.g. SAS 70/SOC 1 reports Insular thinking by firm leaders regarding policies and methodologies Inadequate review of original audit work Walkthroughs rather than internal control reviews 17 6

7 EBSA Enforcement Program Large Firm Inspections Detailed Quality Focus Management of the ERISA practice Staff training and development program Supervision and review of ERISA engagements Firm independence on ERISA engagements Detailed on-site engagement reviews and team interviews for firms with > 200 audits Mini-inspections for audits 18 EBSA Enforcement Program Small Firms OCA will: Send letters to plan administrator requesting copies of audit documentation Perform in-house review of Form 5500, the independent auditor s report and selected workpapers Expand inquiries as necessary 19 AICPA EBPAQC Employee Benefit Plan Audit Quality Center Mission 2,200 firm members 651 member firms perform 5 audits or less Member firms perform 75% of all audits Promoting the quality of employee benefit plan audits Offering resources to member firms to enhance audit quality 20 7

8 AICPA EBPAQC Membership Requirements 1. Establish responsibility of the EBP audit practice to one partner 2. EBP specific CPE requirements 3. Mandate firm s QC EBP requirements 4. Annual firm inspection program 5. Peer review performed by EBPAQC member 6. Make public certain peer review documents 7. Pay dues 21 EBPAQC Annual Inspections Every year even peer review years Key Points 1. Engagement selection should be a representative sample 2. All offices 3. Should include review of Quality Control and EBPAQC membership requirements 4. Inspection team members 5. Timing 6. Results available to peer reviewer 7. Reviews results at CPE programs 22 Question 2-2 For all types of employee benefit plans, the basis for determining employer contributions is specified in the plan instrument or related documents. For defined benefit plans covered by Employee Retirement Income Security Act of 1974 (ERISA), employer annual contributions must also satisfy the minimum funding standards of ERISA. What are the relevant requirements for evaluating the completeness, accuracy and timeliness of employer contributions for employee benefit plans? 23 8

9 Question 2-2 Employer Contributions Depends on Plan document provisions Generally due with employer tax return Disclosure in financial statements 24 Question 2-3 In a limited scope audit, the auditor was informed via direct participant confirmations, that the participant contributions to each participant's account that although the total match was credited correctly, it was not invested in the funds directed by the employee. Instead, 100% of the employee contributions were invested in one investment option. The employer has contacted the third party administrator who is in the process of computing the cost or benefit to the employee for this error and will correct the error. Is this documented anyplace in the report, supplemental schedules or Form 5500 and how? 25 Question 2-3 Participant Contribution Direction Errors System effectiveness and errors Auditor must test employee contribution elections and allocations SOC 1 is also key Consider participant contributions Key control considerations 26 9

10 Question 2-4 What impact did ASU , Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, have on the overall ASC 820 disclosures and what is now required to be disclosed? 27 Question 2-4 ASU Clarifying language Additional disclosures Tabular quantitative information Example Reconciliation of activity Qualitative information of valuation processes Addition Disclosures for public companies Effective periods beginning after 12/15/11 28 Question 2-5 The example in the Employee Benefit Plan Audit Guide example for profit sharing plans does not break down the plan assets (investments) by industry sector, only corporate bonds by rating. Last year I broke down the different types by industry including the corporate bonds. Should I do the same this year or go by what the EBP Audit Guide suggests? 29 10

11 Question 2-5 ASU Profit Sharing Plans Fair Value Disclosures Should Be Disclosed By Class Of Assets Based On The Nature Of The Risks (Shared) activity or business sector Addition Disclosures for public companies Vintage Geographic concentration Credit quality Economic characteristic Based on client judgment and rationale 30 Question 2-6 What financial statement disclosures are required when my Plan has investments valued at NAV that cannot be redeemed as of the day of the financial statements? 31 Question 2-6 ASU NAV Nature and term redemption restrictions ASC 820 classification impact Tabular presentation 32 11

12 Question 2-7 ASU was issued in October 2012, and made several technical corrections to the Codification that included changes to ASC 962, Plan Accounting Defined Contribution Pension Plans. What are the financial statement disclosure implications as a result of this ASU? 33 Question 2-7 ASU Technical corrections Conforming amendments Effective for periods beginning after 12/15/13 for nonpublic entities 34 Question 2-8 What are the implications of the client changing ASC 820, Fair Value Measurements, classifications from what was presented in the prior year? How should such a change be disclosed and what impact does it have on the financial statements? 35 12

13 Question 2-8 Changes To ASC 820 Classification Between Years Prior year classification should be changed to conform to the current year classification The change should be noted in the descriptive portion of the ASC 820 footnote dealing with the investment that was changed\ The footnote should avoid the terms reclassification and transfer Consideration of noting the prior year information as restated may be appropriate No modification of the audit opinion 36 Question 2-16 The majority of the literature gives examples for financial statement disclosures for master trusts. Are there pertinent financial statement reporting and disclosure issues the same for a Master Trust, CCT and a PSA? 37 Question 2-16 Master Trust, CCT and PSA Disclosures Master trust much more expansive and is required Single line item on financial statements Comprehensive footnote based on percentage ownership CCT and PSA based on nature and complexity of the investment contract held by the Plan Details of investments held either can be in separate footnote or as a part of ASC 820 disclosures 38 13

14 Question 2-17 What are the disclosure requirements under ASC 965, Plan Accounting Health and Welfare Benefit Plans, with regard to fully benefit responsive insurance contracts? 39 Question 2-17 Fully Benefit Responsive Insurance Contracts Determine contract value and fair value Financial statement disclosures Investment shown at fair value Contract value adjustment shown on face of balance sheet Footnote disclosures should include: Significant accounting policy disclosures regarding valuation Separate footnote detailing the qualitative disclosures of the operating structure of the contract and how it is valued 40 Question 2-22 Your client, RGC 401(K) Plan and the Plan trustee, Home Federal Bank, have prepared the 2012 Plan financial statements on a modified cash basis. These financial statements have not included accruals for contributions or expenses. Is this presentation permissible under professional standards for employee benefit plans? 41 14

15 Question 2-22 Modified Cash Basis SPF DOL permits and accepts modified cash basis statements Modify opinion based on AU 800 under the clarity project Investments still at fair value Disclosures Basis of accounting including principal differences All other disclosures still must be included Restate prior year to reflect SPF 42 Question 2-27 My client has multiple operational defects related to their 2012 audit. They did not remit participant contributions on a timely basis. They did not follow the definition of eligible compensation as defined in the Plan document and failed to include certain employees in the Plan when they became eligible and entered into the Voluntary Compliance Program to correct. They did not correct a prior year overfunding based on ACP/ADP limits. The client has entered the DOL VFCP to correct. What impact do these operational defects have on the financial statement disclosures for 2012? 43 Question 2-27 Plan Operational Defect Disclosures Participant contributions Disclosure should be included in the financial statements Include 5500 supplemental schedule 4a Plan document errors and VCP Disclosure errors and corrections made Disclose participation in VCP ACP/ADP errors Disclosure errors and corrections made Disclose participation in VFCP 44 15

16 Question 2-28 My client is a participant directed defined contribution plan with an employer match. My client is concerned about the liability they have as the plan sponsor for the current volatility in the financial markets. What impact does the potential future volatility of the financial markets have on the financial statements of the 401K plan and what disclosures are appropriate? 45 Question 2-28 Significant Plan Risks and Uncertainties ASC 275 The nature of their operations Use of estimates in the preparation of financial statements Certain significant estimates Current vulnerability due to certain concentrations Examples Concentration of credit risk ASC Question 3-3 You are planning the audit of an employee benefit plan as of December 31, 2012 and inquire as to the existence of the SOC 1 for the third party administrator. You note that the SOC 1 is dated June 30, A. What additional procedures must the auditor perform, given the difference in report periods covered? 47 16

17 Question 3-3 SOC 1 Different Periods and Extended Procedures A. The plan auditor should determine, through inquiries of the service organization or its service auditors, whether the service organization changed any of its controls during the six-month period not covered by the service auditor s report. 48 Question 3-5 You have just been named as the auditor for a multiemployer defined benefit pension plan for the year ended December 31, In your initial review of the client data, you discover the following: The plan replaced its Third Party Administrator effective March 31, 2012 The Plan changed actuaries for the 2012 plan year 25% of the plan assets are in GIC insurance contracts 15% of the plan assets are in real estate which was last appraised in The plan was amended in June 2012 to a cash basis pension plan. All participant data is maintained at the employer level and the plan does not perform any audit of payroll records of participating employers How would this information affect your audit? 49 Question 3-5 Initial Year Audit Planning Must make predecessor auditor inquiries Initial beginning balances must be audited The plan replaced its Third Party Administrator effective March 31, 2012 Additional procedures for assets transfer, obtain multiple SOC 1 reports and modify limited scope opinion The Plan changed actuaries for the 2012 plan year verify qualifications of new actuary and compare assumptions between the current and predecessor actuary 50 17

18 Question 3-5 Initial Year Audit Planning 25% of the plan assets are in GIC insurance contracts Assess fair value measurement procedures and ASC 820 disclosures 15% of the plan assets are in real estate which was last appraised in 2010 review current valuation and determine if an updated valuation is required The plan was amended in June 2012 to a modified cash basis plan a copy of the plan amendment should be obtained to determine its impact on plan operations and the amendment should be disclosed 51 Question 3-5 Initial Year Audit Planning All participant data is maintained at the employer level and the plan does not perform any audit of payroll records of participating employers: Representative sample of employers must be tested each year Scope limitation if not tested 52 Question 3-6 The existing literature discusses instances where it may be necessary for the Independent Qualified Public Accountant (IQPA) to modify the standard audit report. What impact on the acceptance of the filing by the DOL does a modified audit opinion have? 53 18

19 Question 3-6 Modified IQPA Opinions Generally an unqualified is expected by the DOL Limited scope and 403(b) modifications are accepted All other modifications will be reviewed as to the facts and circumstances that exist generally not accepted 54 Question 3-7 We are performing a 401(k) audit for a company. We do not perform the sponsor s financial statement audit (Big 4 firm). The Sponsor received a clean audit report. Payroll is processed by ADP and we have obtained and reviewed their SOC I, Type II report. As the auditor, what do I need to do to as far as payroll testing/documentation for the 401(k) audit? 55 Question 3-7 Payroll Testing Payroll must be tested in all Plan audits Can coordinate with Sponsor Audit Payroll internal controls must be documented and tested where relied on SOC 1 for the payroll service provider reduces but does not eliminate the level of testing required 56 19

20 Question 3-7 Payroll Testing Payroll must be tested in all Plan audits Testing payroll data for one or more pay periods and for a number of participants by Tracing the individual payrolls from the payroll journal to the participants' earnings records For participants paid on an hourly or piecework basis, testing payroll hours, production tickets, or other supporting evidence and testing the computation of hours Testing rates of pay to authorizations or related contracts 57 Question 3-8 Lakeview Marina 401(k) plan permits its participants to choose from a variety of mutual funds and company stock. All investments are participant directed and can be initiated and changed on the internet. The sponsor does not maintain an individual transaction detail as all transactions are made directly with the third party administrator. How should the auditor test the participant data for this plan? 58 Question 3-8 Auditing Participant Directed Transactions Basis of assets and liabilities same basis as the predecessor entity Obtain a SOC 1 TYPE 2 report for the TPA Reduces but not eliminate required audit procedures Test controls at the service organization level Confirm the information directly with participants Perform other substantive analytical procedures on other available information 59 20

21 Question 3-9 My client has a defined benefit plan that holds various alternative investments including hedge funds and real estate funds. What audit procedures must be performed to test these investments? 60 Question 3-9 Auditing Alternative Investments Common audit considerations for alternative investments may include: Determining the types of investments held Determining what data is available from the fund manager Obtaining the audited financial statements for the investment fund Obtaining the SOC 1 Type 2 reports for the fund Determining the unit values of investments and how they were calculated 61 Question 3-10 You are planning the audit of a 401(k) plan in which participants are allowed to invest in certain mutual funds or alternately self-directed brokerage accounts. The brokerage account investment records are sent to the third party administrator once a month where it is given recorded and reflected on the participant statements. What other audit procedures must be performed to test these investments? 62 21

22 Question 3-10 Self-Directed Investments Specific full-scope audit procedures should be considered The objectives of auditing procedures applies to self-directed accounts and should include: Whether all investments are recorded and exist via confirmation Whether the investments are owned by the plan Whether investment holdings are recorded and properly valued at fair value 63 Question 3-11 Our firm just picked a new client that is a multiemployer union pension plan. We have never audited a plan of this type. What principle audit considerations should we address when planning this audit? 64 Question 3-11 Multiemployer Plan Audit Considerations Management of plan assets Participant data and contributions Plan loans Benefits provided Plan administrative costs and cost allocations 65 22

23 Question 3-11 Multiemployer Plan Audit Procedures Test individual employer contributions Employer payroll testing If the plan administrator has participant data the auditor can test at the TPA level Address payroll internal controls to ensure the data on all participants is included Consider confirming with participants or comparing this information to that maintained at the individual employers. Auditor should perform testing at selected multiemployer locations 66 Question 3-11 Multiemployer Plan Audit Procedures Test individual employer contributions Employer payroll testing Auditor can rely on payroll audits done by others Auditor can rely on agreed-upon procedures engagement performed employer s auditors The auditor can obtain and review available SOC 1 Type 2 reports to reduce but not eliminate the required testing Lack of testing is a scope limitation 67 Question 3-11 Multiemployer Plan Audit Procedures Test multiemployer parties-in interest transactions Identify Disclose Test plan administration expenses and charges Reasonable Private inurement Allocations factors 68 23

24 Question 3-13 I have a client that is paperless but is objecting to our confirming the deferral investment allocations with the participants. They say they won t send out confirmations unless confirmations are required by the DOL. We have explained to them that the DOL requires deferral investment allocations be tested but does not specify how to test them. I have sent them the applicable section from the AICPA Audit Guide that discusses testing deferral investment allocations and recommends confirmations and that the DOL recommends the use of the EBP audit guide. Are you aware of anything from the DOL that I can give them to verify the requirement to test deferral investment allocations and/or recommends the use of confirmations? 69 Question 3-13 Participant Contribution Confirmations No specific DOL requirement to confirm Audit procedures required current guidance Obtaining an understanding of how investment allocations are to be made Testing the allocation of income or loss, appreciation or depreciation in value of investments, administrative expenses, and amounts forfeited for selected accounts 70 Question 3-13 Participant Contribution Confirmations No specific DOL requirement to confirm Audit procedures required current guidance The testing of internal controls over this area may be addressed in the SOC 1 report of the recordkeeper for the plan s investment Relying on a SOC 1 report reduces but does not eliminate the testing requirements 71 24

25 Question 3-13 Participant Contribution Confirmations No specific DOL requirement to confirm Audit procedures required current guidance Where participants make contribution or investment elections by telephone or electronic means, consider confirming contribution percentage and source and investment election directly with the participant or compare to a transaction report, if one is maintained 72 Question 3-13 Participant Contribution Confirmations No specific DOL requirement to confirm Audit procedures required current guidance Determining that contributions are properly classified and invested according to the participants investment election Determining whether the sum of individual accounts reconciles with the total net assets are available for benefits. 73 Question 3-14 A. What is the auditor s responsibility for detecting non-exempt transactions resulting from participant contributions that are not remitted to the plan within the guidelines established by DOL regulations? B. If a non-exempt transaction is noted, is materiality of the transaction taken into consideration in determining the need for the supplemental schedule of non-exempt transactions? 74 25

26 Question 3-14 Auditing Timely Remittance of Participant Contributions A. Auditor responsibilities EBSA enforcement project Participant contributions are required to be remitted as soon as they can reasonably be segregated from an employer s general assets Small plan safe harbor 5500 Schedule H Question 4a Required supplemental schedule Correct inside or outside the VFCP Management representations check to determine if inconsistent with the accountant s calculations 75 Question 3-14 Auditing Timely Remittance of Participant Contributions A. Auditor considerations Payroll tax remittances No materiality Consistency No safe harbor for large plans Judgment Management representations check to determine if inconsistent with the accountant s calculations 76 Question 3-14 Auditing Timely Remittance of Participant Contributions A. Auditor procedures Make inquiries of plan management regarding timely remittance Obtain a schedule of participant contributions for the year under audit The date contributions were either withheld or received by the employer The date the contributions were remitted to the plan Test the schedule for completeness and accuracy 77 26

27 Question 3-14 Auditing Timely Remittance of Participant Contributions A. Auditor procedures The auditor should also review the complete listing of contributions and inquire about any contribution(s) that appear(s) to be in violation of DOL regulations If late remittances are discovered, either through inquiry of plan management or the analysis of participant contributions for the year, the auditor should consider performing additional procedures to ensure all instances of late remittances are properly identified 78 Question 3-14 Auditing Timely Remittance of Participant Contributions A. Auditor procedures Request that the plan sponsor analyze all payroll remittances for the period to identify other later remittances Review the results of the sponsor s additional analysis and consider further testing, as necessary The auditor should also consider whether late remittances are properly reported on the plan s Form Question 3-14 Auditing Timely Remittance of Participant Contributions B. There is no materiality threshold for the inclusion on the supplemental schedule. All known events must be reported

28 Question 3-16 We audit a large defined benefit plan and have obtained the actuarial report for the Plan for the 2012 plan year. What is our responsibility when it comes to performing procedures with regard to the actuarial valuations? 81 Question 3-16 Audit Responsibilities Actuarial Reports AU 620 Mandates that the auditor review the overall plan actuarial assumptions for reasonableness, consistency and major changes that should be disclosed in the financial statements Reasonableness of all key assumptions SSARS allows successor to refer to predecessor report and to report on restatement adjustment 82 Question 3-16 Audit Responsibilities Actuarial Reports Key audit procedures to document The professional qualifications of the actuary The scope of actuarial procedures The major actuarial assumptions and the consistency of application between periods The actuarial valuation considers all plan provisions, plan amendments, other internal and external factors 83 28

29 Question 3-16 Audit Responsibilities Actuarial Reports Key audit procedures to document There are no obvious conflicts of interest or other factors that may impair the objectivity of the actuary. Verify the accuracy and completeness of the census data used by the actuary Confirm with the actuary the participant data used in the actuarial valuation. 84 Question 3-34 Your client has a Profit Sharing Plan that has timberland as a component of their net assets. An independent appraiser, as of December 31, 2012, valued the property at $275,000. In March 2013, the Plan sold, to an independent third party via an unsolicited offer, the timberland and realized a $98,000 loss. The loss is material to the financial statements. The client had no previous disclosed plans to dispose of the land and was not actively marketing the property. The auditor performed all relevant procedures regarding the property and had not booked a valuation allowance. For the 5500 and participant statements, the third party administrator, with the approval of the client, adjusted the FMV of the land as of December 31, 2012 to the actual sales price since the timberland was sold before the statements were issued. Comment on this presentation and what the auditor should do. 85 Question 3-34 Party-In-Interest Transactions and Disclosures Valuation was obtained based on current market information no allowance should be booked Reconcile the 5500 to the financial statements Additional procedures to verify the reasonableness of the valuation should be applied ASC 855 subsequent Events, establishes the general standards of accounting for and disclosures of events that occur after the balance sheet date, but before financial statements are issued or are available to be issued and addresses: Recognized subsequent events Nonrecognized subsequent events 86 29

30 Question 4-5 Our firm is conducting an internal inspection of our EBP engagements and is trying to note any potential deficiencies that might be noted by the DOL if one of our engagements were to be selected for review. What are the common audit deficiencies that have been noted by the DOL when reviewing EBP audits performed by small firms? 87 Question 4-5 DOL Common audit Deficiencies Participant data 63% Investment 36% Contributions 32% Benefit payments 37% Related Parties/Prohibited Transactions 39% Other Areas Audit planning and risk assessment currently under scrutiny 88 Question 4-24 Can a plan sponsor or fiduciary purchase additional fidelity bond coverage beyond the ERISA-mandated requirement, and why would the sponsor want to do so? 89 30

31 Question 4-24 ERISA Fidelity Bonding Requirement Yes 10% of assets handled is minimum $500,000 maximum Normally additional coverage is not purchased Separate E&O coverage for the Sponsor 90 31