LIST OF SUBSTANTIVE CHANGES AND ADDITIONS. PPC's Guide to Audits of Employee Benefit Plans. Twenty sixth Edition (February 2016)

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1 Route To: Partners Managers Staff File LIST OF SUBSTANTIVE CHANGES AND ADDITIONS PPC's Guide to Audits of Employee Benefit Plans Twenty sixth Edition (February 2016) Highlights of this Edition The following are some of the important new features of the 2016 Edition of PPC's Guide to Audits of Employee Benefits Plans: Audit Quality. Improving audit quality has been a topic of growing interest to regulators, standards setters, and practitioners. In May 2015, interest in this area grew as the Department of Labor released their study, Assessing the Quality of Employee Benefit Plan Audits, highlighting a number of serious audit deficiencies in their findings. In this edition of the Guide, we have updated our discussion of the DOL s study of audit quality for the 2015 report. As in past editions, your Guide and its practice aids, when used properly based on the circumstances of each engagement, give you the confidence that you are complying with the auditing standards. Furthermore, as always, your Guide is peer reviewed on an annual basis. Updated for New Standards and Other Guidance. The audit programs, checklists, letters, other practice aids, and practical guidance have been updated for recently issued authoritative literature and to reflect the requirements and information in the 2015 versions of the Form 5500 and the AICPA Audit and Accounting Guide, Employee Benefit Plans, to help you apply the latest requirements in your audit engagements. For example, your Guide has been updated For ASU , Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): (Part I) Fully Benefit Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient. The ASU was issued to reduce complexity in employee benefit plan accounting. ASU is effective for fiscal years beginning after December 15, However, earlier application is permitted. For ASU , Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), which removes the current requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. ASU is effective for fiscal years beginning after December 15, 2016, with earlier application permitted. Dual Guidance for Going Concern. The 2015 edition of the Guide provided informative discussion and practical considerations on ASU , Presentation of Financial Statements Going Concern (Subtopic ): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. This Guide has been updated to address engagements under ASU , for those plans that have chosen early implementation, while also retaining existing guidance under AU C 570, The Auditor s Consideration of an Entity s Ability to Continue as a Going Concern, for those not yet subject to the ASU. New Practice Aid. Your Guide includes a new request for legal representation for use when the client has provided a standing request letter authorizing their lawyer to respond to a direct update request from the auditor. ebpp16sub 1

2 Comprehensive, Up to date Disclosure Checklists. The most effective way to ensure that all of the required information is disclosed in the financial statements you audit is to use our comprehensive disclosure checklists. The separate disclosure checklists for defined benefit plans, defined contribution plans, and health and welfare benefit plans have been thoroughly updated to provide you the most current and comprehensive tools to help you ensure the financial statements you audit comply with authoritative pronouncements. Chapter/Practice Aids Description of Changes/Additions Guide Reference GENERAL 1. Changed references throughout the Guide, where applicable, from Technical Practice Aid (TIS) to Technical Question and Answer (Q&A) due to AIPCA name change. Various CHAPTER 1 Background Information CHAPTER 2 ERISA and Certain Tax Requirements CHAPTER 3 Accounting and Financial Reporting Standards for Employee Benefit Plans 1. Updated the discussion of the economic significance of employee benefit plans. 2. Updated and expanded the discussion of the EBSA study of audit quality for the release of the EBSA report, Assessing the Quality of Employee Benefit Plan Audits, in May Added a note discussing the recent issuance of IRS Announcement on the changes to the determination letter program. 2. Updated the amount of compensation used in determining highly compensated employees. Paragraphs Paragraphs Paragraph Paragraphs , Updated the limits on annual contributions and benefits. Paragraphs , Updated the discussion of the amount of compensation used Paragraph in determining key employees. 5. Added discussion on the IRS position emphasized in its Paragraph Employee Plan News (Issue No ) that plan sponsors are responsible for administration and document retention of certain transactions, including hardship distributions and loans. 6. Updated the limits on flexible spending accounts. Paragraph Updated for the 2015 versions of the Form 5500 and related Section 204 schedules. 8. Updated the Pension Benefit Guaranty Corporation (PBGC) Paragraph insured benefit amounts. 9. Updated ERISA and DOL pronouncements. Appendix 2A 10. Updated the Form 5500, schedules, and attachments Appendix 2C reference chart. 1. Updated for the issuance of ASU , Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): (Part I) Fully Benefit Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient. 2. Added a footnote about the issuance of ASU , Financial Instruments Overall (Subtopic ): Recognition and Measurement of financial Assets and Financial Liabilities. Throughout Paragraph

3 CHAPTER 4 Pre engagement Activities and Audit Planning CHAPTER 5 Special Auditing Considerations CHAPTER 6 Concluding the Audit 3. Updated illustrative financial statement presentations and disclosures. 1. Added a discussion on engagement team member assignment and competence under AU C Updated discussions on independence and nonattest services. 3. Added a footnote discussing the recent issuance of IRS Announcement on the changes to the determination letter program. Appendixes 3A, 3B, 3C Paragraph Paragraphs , , , , , Paragraph Updated the discussion on the COSO framework. Paragraph Added a footnote discussing a FASB exposure draft that Paragraph would amend Statement of Financial Accounting Concepts No. 8, Conceptual Framework for Financial Reporting Chapter 3, Qualitative Characteristics of Useful Financial Information. 6. Expanded the discussion on workpaper review timing. Paragraph Updated the limit on annual contributions in a defined contribution plan. 1. Added a footnote discussing the recent issuance of IRS Announcement on the changes to the determination letter program. 2. Added discussion on refusal of external legal counsel to reply to an audit inquiry letter. 3. Added a note discussing the AICPA s project to revise AU C 570 on going concern considerations 4. Added a note discussing going concern considerations under ASU , Presentation of Financial Statements Going Concern (Subtopic ), Disclosure of Uncertainties about an Entity s Ability to Continue as a Going Concern. 5. Revised the discussion on management representation letters. 6. Added discussion on the evaluation of presentation and disclosure of the financial statements. 7. Expanded the discussion on the timing of the review of workpapers. 8. Expanded the discussion on the communication and correction of misstatements. 9. Updated for the 2015 version of the Form 5500 and related schedules. 10. Revised the discussion of communicating internal control related matters. Paragraph Paragraph Paragraph Paragraph Paragraph Paragraphs 605.1, Paragraphs Paragraph Paragraph Section 610 Exhibit 6 6 Paragraph

4 CHAPTER 7 Auditor's Reports CHAPTER 8 Compilation and Review Engagements COMPILATION AND REVIEW PRACTICE AIDS (EBP CR) Engagement Acceptance Form Checklist for a Step down Engagement Illustrative Engagement Letters Compilation, Review, and Approval Form Review, Review, and Approval Form 1. Updated the discussion of terminating plans where liquidation is deemed to be imminent. 2. Revised the example report on compiled financial statements. Paragraph Paragraph 704.3, Appendix 7B 8 3. Updated the Basis of Accounting paragraph. Appendix 7B 6 1. Added a discussion of financial statement preparation Paragraph service. 2. Revised the discussion of compilation and review literature. Paragraph Revised the discussion of communication with predecessor Paragraph accountant. 4. Added a discussion of continuing clients. Paragraph Revised the discussion of compilation performance requirements. Paragraph Revised the discussion of review performance requirements. Paragraphs 804.2, 804.7, , Revised the discussion of representation letters. Paragraphs Expanded the discussion of required workpapers for a SSARS No. 21 compilation or review engagement. 9. Revised the discussion of subsequent discovery of facts existing at date of report. 10. Revised the discussion of reporting on compiled or reviewed financial statements. Paragraphs 805.7, Paragraph Paragraphs 806.2, 806.4, 806.6, Updated the instructions to the form. EBP CR 1 2. Updated the acceptance questionnaire items related to independence problems or conflicts of interest and fee arrangements. 3. Added references to the 2015 AICPA Guide, Preparation, Compilation, and Review Engagements (AICPA CAR Guide). 4. Updated note b which addresses the current exclusion of step down engagements from AR C 80, Compilation Engagements, to include reference to the 2015 AICPA CAR Guide. 5. Revised the illustrative engagement letters and expanded guidance related to providing nonattest services. 6. Revised the instructions and updated for the issuance of the AICPA CAR Guide. EBP CR 2 EBP CR 2 EBP CR 3.1, EBP CR 3.2 EBP CR Updated for the issuance of the AICPA CAR Guide. EBP CR 5.2 4

5 Inquiry and Analytical Program Review Reporting Checklist Illustrative Representation Letters CONFIRMATION AND CORRESPONDENCE LETTERS (EBP CL) Audit Engagement Letters Legal Letters Management Representation Letter Internal Control Communications Communication with Those Charged with Governance Actuary Communications 8. Expanded the practical considerations related to applying analytical procedures. 9. Revised the question related to financial statements prepared in accordance with a regulatory or contractual basis of accounting. 10. Added a practical consideration to the question related to material GAAP departures. 11. Added a question related to situations where other accountants have audited or reviewed significant components and reliance is placed on their work. EBP CR 7 EBP CR 8.2 EBP CR 8.2 EBP CR Revised the representation related to uncorrected misstatements. EBP CR Revised the note related to providing nonattest services. EBP CR 9 1. Further clarified the practical consideration on documenting nonattest services. 2. Added a practical consideration regarding modifications if providing permissible tax services. 3. Added a practical consideration to clarify the definition of preparation of financial statements under AR C Modified the practical consideration referring to analyzing legal and professional fees. 5. Modified the practical consideration referring to the auditor s preliminary judgment about materiality. 6. Expanded the practical consideration related to the effective date of the lawyer s response. 7. Added a new practice aid, Updating Request for Legal Representation Standing Request Provided. 8. Revised the practical consideration related to providing nonattest services. 9. Added a practical consideration with additional language to address a GAAP departure. 10. Added a reference to PPC s Guide to Audits of Financial Institutions for guidance on integrated audits. 11. Added a practical consideration on combining certain internal control communications with the communications with those charged with governance. 12. Expanded to request confirmation of mortality table and projection scales used. EBP CL 1.1, EBP CL 1.2 EBP CL 1.1, EBP CL 1.2 EBP CL 1.1, EBP CL 1.2 EBP CL 2.1, EBP CL 2.2 EBP CL 2.1, EBP CL 2.2 EBP CL 2.1, EBP CL 2.2, EBP CL 2.3 EBP CL 2.4 EBP CL 3.1 EBP CL 3.1 EBP CL 4.1, EBP CL 4.2, EBP CL 4.3 EBP CL 5.1 EBP CL 5.1, EBP CL 5.2 5

6 CHECKLISTS AND PRACTICE AIDS (EBP CX) Engagement Acceptance and Continuance Form Engagement Independence Compliance and Nonattest Services Documentation Form Audit Decision Worksheet for Defined Benefit and Defined Contribution Retirement Plans Understanding the Design and Implementation of Internal Control Financial Reporting System Documentation Form Walkthrough Documentation Memo Activity and Entity level Control Forms Risk Assessment Summary Form Test of Controls Form Checklist of Tax related Considerations for Defined Benefit and Contribution Retirement Plans Disclosure Requirements for Financial Statements of Employee Benefit Plans Supervision, Review, and Approval Form Going Concern Checklist 1. Added a factor to consider regarding preparation of financial statements under AR C Added a factor to consider regarding management s use of an unacceptable financial reporting framework, refusal to accept responsibility for the financial statements, or refusal to provide certain information. EBP CX 1.1 EBP CX Enhanced the instructions to the practice aid. EBP CX Added a field to document assessment of skills, knowledge, experience, and understanding of the client personnel charged with oversight, as well as a corresponding instructional note. EBP CX Updated for the 2015 Form EBP CX Added Financial Close and Reporting to the significant transaction classes included in the Activity Level controls documentation item. EBP CX Enhanced the instructions to the practice aid. EBP CX Added a step to document any other inquiries of employees or comments about the walkthrough that are relevant to the understanding of the design and implementation of controls. 9. Made minor edits and revisions to clarify the form and certain control objectives and controls. 10. Expanded and clarified instructions on documentation of the rationale behind assessment made for inherent risk. 11. Expanded the instructions to a step on documenting testing procedures performed. 12. Updated the practical considerations regarding contribution limits for 2016 amounts. 13. Added a practical consideration discussing the recent issuance of IRS Announcement on the changes to the determination letter program. EBP CX EBP CX 5 Series EBP CX 7.1 EBP CX 10.1 EBP CX 11.7 EBP CX Updated for changes in authoritative literature. EBP CX 13.1, EBP CX 13.2, EBP CX Added fields to document report release and documentation completion dates, as well as corresponding practical considerations. 16. Modified to incorporate testing for engagements under ASU , for entities that have chosen early implementation. EBP CX 14 EBP CX

7 CORE AUDIT PROGRAMS (EBP APDB, EBP APDC, EBP APHW) Instructions General Planning General Auditing and Completion 1. Clarified language in the instructions regarding linking procedures to assertions. 2. Added and expanded on practical considerations related to client acceptance and continuance. 3. Added a step to complete EBP CX 1.2 if nonattest services are or will be performed for the client. 4. Expanded on a step on partner approval of engagement team assignments. 5. Modified a practical consideration for the issuance of SAS Added new practical considerations discussing retrospective review and preliminary analytical procedures. 7. Added a practical consideration discussing the recent issuance of IRS Announcement on the changes to the determination letter program. 8. Added a practical consideration discussing the need to consider service organizations and their role in the accounting process, including adjusting entries. 9. Added a practical consideration discussing risk due to IT security breaches. 10. Added a sub step on changes to methods or assumptions in developing accounting estimates. Instructions EBP APDC Added a sub step on related party transactions. 12. Modified the step and a practical consideration related to going concern considerations to cover plans that have early adopted ASU Expanded the procedures for considering the accumulated results of audit procedures in relation to the audit risk assessment. 14. Added practical considerations related to significant unusual transactions. 15. Modified the step and added a practical consideration regarding documenting the report release date and documentation completion date. 7

8 Other General Auditing and Completion Minutes, Plan Documents, Contracts, and Agreements Investments and Related Income DOL Limited scope Audit Investments and Related Income Full scope Audit Other Audit for Investments and Related Income Full scope Audit Contracts with Insurance Companies and Similar Institutions DOL Limited scope Audit 16. Expanded on and clarified a step and added a practical consideration for responding to significant risks in accounting estimates. 17. Added a practical consideration discussing the recent issuance of IRS Announcement on the changes to the determination letter program. 18. Added a practical consideration regarding self directed brokerage accounts. 19. Expanded the practical considerations regarding common/ collective trusts with investments in contracts with insurance companies. 20. Expanded the practical considerations regarding common/ collective trusts with investments in contracts with insurance companies. 21. Expanded the practical considerations regarding fully benefit responsive investment contracts for the issuance of ASU (Part I). 22. Added a practical consideration to the Derivatives section concerning master netting arrangements. EBP APDB 2, Other EBP APDC 2, Other EBP APHW 2, Other EBP APDB 3, EBP APDC 3 EBP APDC 6, Basic EBP APDB 6, Basic EBP APDC 6, Basic EBP APHW 6, EBP APDB 7, Basic EBP APDC 7, Basic EBP APHW 7, EBP APDC 7, Basic EBP APHW 7, EBP APDB 7, Other EBP APDC 7, Other EBP APHW 7, Other 23. Added procedures for self directed brokerage accounts. EBP APDC 7, Other 24. Expanded the practical considerations regarding common/ collective trusts with investments in contracts with insurance companies. 25. Expanded the practical considerations regarding fully benefit responsive investment contracts for the issuance of ASU (Part I). EBP APDB 8, Basic EBP APDC 8, Basic EBP APHW 8, EBP APDC 8, Basic EBP APHW 8, 8

9 Contracts with Insurance Companies and Similar Institutions Full scope Audit Other Audit for Participant Data and Employee Contributions Benefit Payments Benefit Obligations Cash 26. Expanded the practical considerations regarding common/ collective trusts with investments in contracts with insurance companies. 27. Expanded the practical considerations regarding fully benefit responsive investment contracts for the issuance of ASU (Part I). EBP APDB 9, Basic EBP APDC 9, Basic EBP APHW 9, EBP APDC 9, Basic EBP APHW 9, 28. Added procedures for self directed brokerage accounts. EBP APDC 10, Other 29. Added a practical consideration discussing the IRS position on the responsibility of plan sponsors to track hardship distributions. 30. Revised a practical consideration regarding new mortality tables. 31. Added practical considerations discussing confirmation and reconciliation procedures. EBP APDC 11, EBP APDB 12, EBP APDB 13, Basic and Extended EBP APDC 13, Basic and Extended EBP APHW 13, Basic and Extended 9