Updates to Peer Reviews of EBP Audits, including 403(b) Plan Considerations

Transcription

1 Updates to Peer Reviews of EBP Audits, including 403(b) Plan Considerations June 22, 2011 Presenters Moderator Marilee Lau, retired partner KPMG LLP; Marilee Lau, CPA Part 1 Bob Lavenberg, Chair, AICPA Employee Benefit Plan Audit Quality Center Executive Committee; Partner, BDO USA LLP Debbie Smith, Chair, AICPA Employee Benefit Plan Expert Panel; Partner, Grant Thornton LLP Part 2 Tom Parry, Chair, AICPA Peer Review Practice Monitoring Task Force for Employee Benefit Plans; Shareholder, Benson & Neff, CPAs, P.C. Randy Watson, Chair, AICPA Peer Review Board Oversight Task Force; Partner, Yanari Watson McGaughey P.C. Bill Lajoie; Technical Reviewer for Colorado Society of CPAs; William G. Lajoie P.C. 2 1

2 Objectives Part 1 403(b) Plan overview Unique audit considerations Part 2 Peer review considerations 3 Part 1 Objectives 403(b) Plan overview Plan basics Differences from 401(k) plans ERISA coverage DOL reporting and audit requirements DOL enforcement relief Financial statements and disclosures Unique audit considerations First year audits/beginning balances Audit scope Auditor reports Auditor communications Additional resources 4 2

3 403(b) Plan Overview 5 What Is a 403(b) Plan? Internal Revenue Code (IRC) 403(b) plans also known as tax-sheltered annuity plans (TSA plans) Retirement plans often offered by governments, schools, hospitals, churches, charities and certain other IRC 501(c)(3) tax exempt organizations Law and regulatory changes since 1986 have slowly been eliminating any differences between 403(b) plans and 401(k) type plans recent changes continue that trend 6 3

4 Individual Investment Accounts A 403(b) plan comprises group and/or individual investment accounts that may include the following types: Fixed and variable annuity contracts with insurance companies Custodial accounts made up of mutual funds A retirement income account set up for church employees 7 403(b) vs. 401(k) Plans Universal availability vs. ADP test Cannot define certain employees out of eligibility but may exclude: - Students, non-resident aliens, employees covered by another similar plan and employees normally working < 20 hours per week Must provide meaningful notice of right to participate 5 year post-employment contributions Additional catch-up contribution for long service employees 8 4

5 403(b) vs. 401(k) Plans (continued) No prototype documents, no determination letter program in place, currently. IRS model language in Rev. Proc Annual addition (Section 415) calculation MAY be different Restrictions on exchanges of insurance annuity contracts Restrictions on plan-to-plan transfers Can t transfer to a 401(a) plan, only 403(b) plans 9 Final IRS Regulations Issued July 24, 2007 Generally effective for plan years beginning after January 1, 2009 Does not impact the ERISA status of the plan directly Written plan document required for ALL 403(b) plans Maintained by the employer Can be a stand-alone plan document May be a collection of documents Must contain all material provisions 5

6 ERISA or Non-ERISA Plan? What is an ERISA covered 403(b) plan? Generally, where there are employer contributions, and/or Where the employer has control or discretion over the plan Generally excluded from ERISA and the 5500/audit requirements: Governmental plans under ERISA section 3(32) Church plans under ERISA section 3(33) Plans that comply with the DOL safe harbor rules under DOL regulation 29 CFR (f) 11 DOL Field Assistance Bulletin ( FAB ) Plans subject to ERISA Title I always required a written plan document Department of Labor ( DOL ) Field Assistance Bulletin ( FAB ) Exemption from ERISA Title I s reporting requirements (under DOL regulation 29 CFR (f) will still apply IF the employer s involvement remains limited Involvement can include keeping the plan compliant Careful document drafting was essential 12 6

7 Reporting and Audit Requirements Revisions to DOL regulations and the Instructions to Form 5500 Annual Return/Report of Employee Benefit Plan Issued November For 2009, 403(b) plan financial reporting was similar to current 401(k) plan reporting 13 Reporting and Audit Requirements Revisions to the Form (b) Plans covered under Title I of ERISA are subject to: - Completing Form 5500 as a small plan (under 100 participants) or a large plan (100 or more participants) Rule applies as if had participant count - Participants include those eligible under Universal Availability Rule and all former participants with account balances Large plans require the engagement of an independent qualified public accountant (IQPA) to conduct an independent financial statement audit of the plan 14 7

8 DOL Enforcement Relief 15 Field Assistance Bulletin (FAB) DOL FAB , issued July 20, 2009, allows the plan administrator to exclude certain pre-january 1, 2009 annuity contracts and custodial accounts for ERISA reporting purposes. Must meet all of these criteria: 1. the contract or account was issued to a current or former employee before January 1, 2009; 2. the employer ceased to have any obligation to make contributions (including employee salary reduction contributions), and in fact ceased making contributions to the contract or account before January 1, 2009; 3. all of the rights and benefits under the contract or account are legally enforceable against the insurer or custodian by the individual owner of the contract or account without any involvement by the employer; and 4. the individual owner of the contract is fully vested in the contract or account. 16 8

9 FAB (continued) The plan sponsor will need to ensure that the four criteria have been met in order for them to be properly excluded The FAB allows but does not require that contracts and/or accounts be excluded Contracts/accounts that do not meet all of the four criteria may not be excluded Contracts/accounts that are excludable under the FAB may also be excluded from the comparative (2008) financial statements included in the 2009 Form FAB (continued) DOL s expectation is for a good faith effort to comply with the ERISA annual reporting requirements Most vendors will not make the determination whether the contract or account meets the criteria The FAB applies to both large and small plans The FAB also applies to 2009 and years beyond 2009 Current or former employees with contracts excludable under this relief are not counted as participants Note: This does not change the IRS s Universal Availability Rule 18 9

10 FAB Auditor Considerations If plan sponsor elects to exclude certain pre-2009 contracts or accounts Need to consider Effect on completeness of the financial statement presentation Effect of restrictions on the scope of the audit Some sponsors did not find a qualified, adverse or disclaimer of opinion acceptable 19 FAB Auditor Considerations Will likely have to issue a modified audit report Scope limitation GAAP departure Or both! DOL will not reject a 403(b) plan Form 5500 on the basis of a qualified, adverse or disclaimed opinion if the accountant expressly states that the sole reason for such an opinion was because such pre-2009 contracts and accounts were not covered by the audit or included in the plan s financial statements. DOL also clarified that its position was the same with regard to disclaimed opinions due to uncertainty around opening balances

11 FAB Auditor Considerations ERISA and DOL regulations require the audit to be performed in accordance with Generally Accepted Auditing Standards (GAAS) requiring all plan assets to be reported Additionally, the auditor needs to audit the information that is available Cannot limit test work because of a scope limitation or because a modified report (disclaimer, adverse, etc.) will be issued Regardless of the type of opinion issued, the auditor is still required to complete all other GAAS audit procedures (e.g. contributions, distributions, etc.) 21 FAB Annual Reporting and ERISA Coverage for 403(b) Plans Issued February 17, 2010 Provides additional guidance in a Frequently Asked Questions (FAQ) format Confirms that if, as a result of applying FAB , the number of eligible participants is below 100, then the plan becomes a small filer Affirmed that the limited scope exemption is available, but make sure that all requirements are met and that properly certified statements are obtained Acknowledged that the inability of the auditors to obtain sufficient evidence is a restriction on scope of audit, and opinion may be modified accordingly 22 11

12 FAB (continued) States that if, as part of the audit the auditor was engaged to perform, the auditor discovers that contracts were incorrectly excluded under DOL FAB from the plan s financial statements, the DOL expects that the auditor will alert the plan administrator. Plan administrators have an obligation to take reasonable steps to resolve questions concerning the exclusion of such contracts in their annual report. If the plan administrator and auditor do not agree with how to resolve issues relating to excluded contracts, the DOL expects these issues to be noted in the audit report. 23 DOL Advisory Opinion (AO) A Issued March 4, Addresses Traditional Annuities issued by TIAA-CREF Allocated vs. Unallocated insurance contracts? DOL concluded the contracts are UNALLOCATED For plan years beginning on or after 1/1/09 must be reported as plan assets on the Form 5500 DOL will not reject (or require amended) Form 5500 for plan years ending in 2008 or prior which contain a modified opinion due to exclusion of these contracts from plan assets Consider similar contracts with other insurance companies 24 12

13 DOL Advisory Opinion (AO) A- Audit/5500 Considerations Depends on facts and circumstances Financial Statements - Could be an error - May require restatement of financial statements - Modified opinion - Reconciliation to the 5500 Form 5500 Will not have to restate or amend Treat the contracts as a transfer in for the 2009 Schedule H 25 Considerations Relating to Client Acceptance, Fees, Opening Balances History of Plan Age of Plan Organizational Factors Tone at the top Attitude towards compliance Internal controls Historical records Vendors and vendor selection Dedicated staff not just how many but who Budget internal & external Understanding/attitude about audit opinion Vendors How many now Any others in the past Internal controls Historical records transfers Fair value assistance - Stable value funds - Leveling 26 13

14 Unique Audit Considerations 27 Initial Audit Considerations Engagement letter Scope of services - Any client-imposed scope restrictions? - Excluded contracts per DOL FAB? - Limited scope audit under 29 CFR ? Auditor responsibility for prior year (comparative) statement of net assets available for benefits? - Audit, review, compile? 28 14

15 Initial Audit Considerations- Risk Assessment Considerations Need to perform procedures over the completeness and accuracy of participant level information Assets are not held in trust but generally, in individual and/or group annuity contracts or custodial accounts rather than in the plan s name Risk assessment may need to consider condition of records and internal controls over multiple vendors Planning the nature, timing, and extent of further audit procedures depends on the outcome of the auditors risk assessment procedures. See paragraph.34 of the 2011 EBP Audit Risk Alert 29 Initial Audit Considerations- Areas of Special Consideration Completeness of participant data and records Participant eligibility Amounts and types of benefits Eligibility for benefits Account balances The nature, timing, and extent of auditing procedures applied by the auditor are a matter of judgment and will vary with factors such as the adequacy of past records, the significance of beginning balances, the complexity of the plan's operations, and controls covered by SAS No. 70 reports. See paragraph 5.90 of AICPA Audit and Accounting Guide Employee Benefit Plans 30 15

16 Numerous Audit Risk Factors Size of plan and number of years in existence Adequacy and organization of critical plan documents Incomplete or missing records (participant data, payroll, etc.) Disaggregation and completeness of recordkeeping information Identifying all current and former participant accounts to be included as plan assets Missing participants Orphan contracts Multiple service provider concerns Adequacy of internal controls Fiduciary oversight Availability of SAS No. 70 reports Monitoring controls Regulatory compliance matters Investment valuation and reporting Fraud risks See paragraph.34 of the 2011 AICPA EBP Audit Risk Alert 31 Typical Compliance Issues Late deposit of participant deferrals & loan repayments Failure to update plan document Failure to follow plan s eligibility provisions Failure to properly apply plan s definition of compensation Incorrect employer contributions Failure to properly apply plan s vesting provisions Improper use of plan forfeitures Failure to comply with Form 5500 filing requirements 32 16

17 Financial Statements and Disclosures (b) Financial Statements and Disclosures 403(b) plans are considered a type of defined contribution plan EBP Audit Risk Alert notes that the financial statements and disclosures would be similar to those described in chapter 3 (and appendix E) of the AICPA Audit and Accounting Guide Employee Benefit Plans. Comparative Statement of Net Assets Available for Benefits (2009/2008) Current year Statement of Changes in Net Assets Available for Benefits 34 17

18 403(b) Financial Statements and Disclosures 403(b) plans would make all of the appropriate footnote disclosures that apply to 401(k) plans (e.g.- FASB ASC 820 investment fair values, insurance contracts, etc.) Consideration should be given concerning which disclosures may need to be modified or added. For example, the general description of the plan, eligibility requirements, funding, and tax status should reflect the requirements of the 403(b) plan document. Note: The IRS has not yet established a process for issuing determination and/or opinion letters for 403(b) plans Additional or modified disclosures of the accounting policies surrounding the accounting treatment of certain contracts under DOL FAB may be necessary (b) Financial Statements and Disclosures Outside of the plan loans to participants vs. Inside of the plan loans to participants Outside of the plan loans to participants are made by the vendor and are secured by the participant s individual account balance (plan assets) Inside of the plan loans to participants are made by the plan Outside of the plan loans to participants are not currently on the plan s financial statements or the Form 5500 Need to consider additional disclosure in the footnotes regarding collateralized plan assets DOL is considering additional guidance 36 18

19 Auditor Reports 37 Auditor Reports What type of audit report will be issued? Depends on the auditor s professional judgment Whether sufficient appropriate audit evidence has been obtained to form an opinion Could be unqualified, qualified, adverse or disclaimer of opinion Authoritative guidance AU Section 508, Reports on Audited Financial Statements AU Section 551, Reporting on Information Accompanying the Basic Financial Statements in Auditor-Submitted Documents 38 19

20 Auditor Reports The limited scope audit opinion allowed by the DOL under 29 CFR may not be appropriate Reference to compliance with the DOL s rules and regulations as to form and content may not be appropriate based on the type of opinion issued on the financial statements 39 Auditor Communications 40 20

21 SAS 115 Communications Material weaknesses and significant deficiencies? Oversight of the financial reporting process Internal control over financial statement preparation and review Financial statement knowledge Missing records Monitoring active/inactive accounts (b) Plan Resources 42 21

22 403(b) Plan Audit Resources EBPAQC 403(b) Plan Audit Resource Center ngandauditingresourcecenters/pages/403(b)%20plans.aspx 403(b) Plans Primer 403(b) Filing and Audit Requirements 403(b) Getting Started: Meeting the New Form 5500 Reporting and Audit Requirements 403(b) Questions to Expect from Your Plan Auditor 403(b) Sample Auditor Request List for Plan Information 403(b) Retirement Plan Audits-Frequently Asked Questions Archived EBPAQC 403(b) Plan Audits Live Forums - November 6, 2008 & June 10, (b) Plan Audit Resources AICPA Audit Risk Alert Employee Benefit Plans Industry Developments 2010 and 2011 (Audit Risk Alert) Overview of 403(b) plans Pertinent Internal Revenue Service (IRS) regulations Department of Labor's (DOL) Field Assistance Bulletins related to 403(b) enforcement relief Significant differences between 401(k) plans and 403(b) plans Client acceptance and continuance Engagement letter Initial audit considerations Example audit reports Available at AICPA Store at CPA2Biz.com 44 22

23 403(b) Plan Audit Resources U.S. Department of Labor DOL EBSA 403(b) Website - Employee Benefit Security Administration's (EBSA) toll-free Form 5500 help desk is available from 8:00 am to 8:00 pm, Eastern Time, at GO-EFAST ( ) Questions concerning the information contained in the Field Assistance Bulletins may be directed to the DOL's Division of Coverage, Reporting and Disclosure at Questions concerning individual plans facing specific transition issues should be directed to EBSA's Office of the Chief Accountant at (b) Plan Audit Resources Internal Revenue Services (IRS) IRS Web site on IRC 403(b) Tax-Sheltered Annuity Plans at IRS Publication 571 Tax-Sheltered Annuity Plans (403(b) Plans) (Rev. December 2010) Cat. No C Other IRS Publications: Pub. 4482, 403(b) Tax-Sheltered Annuity for Participants Pub. 4483, 403(b) Tax-Sheltered Annuity Plan for Sponsor Pub. 4484, Choose a retirement plan for employees of tax-exempt and government entities (schools, hospitals, churches, charities) Pub. 4530, Designated Roth Accounts under a 401(k) or 403(b) Plan Pub. 4546, 403(b) Plan Checklist Pub. 4547, Have you had your check-up this year? for 403(b) Retirement Plans 46 23

24 Employee Benefit Plan Audit Quality Center Member Benefits & Resources EAlerts EBPAQC Website A&A resource centers Member-to-member discussion forum Archived EAlerts and webinars Tools, primers Plan Advisories Live Forum Webinars 47 Part 1 Question & Answer Session 48 24

25 Part 2 Objectives Peer Review Considerations Peer Review Engagement Selection Process Changes to PRP 20,700 Employee Benefit Plan Audit Engagement Checklist Common Areas of Noncompliance in Employee Benefit Plan Audits Peer Review Administrative Changes Related to EBP Audits and Firm Considerations 49 Peer Review Practice Monitoring Task Force for Employee Benefit Plans Formed to focus specifically on enhancing the peer review quality of employee benefit plan audit engagements since these are considered to be high risk engagements Recent activities: Revised PRP 20,700 EBP Audit Engagement Checklist Recently approved 403(b) Plan specific questions to be added to PRP 20,700 EBP Audit Engagement Checklist Webinar Pre-conference optional Employee Benefit Plan session at the Peer Review Conference in August AICPA staff meet with DOL representatives on a quarterly basis to maintain continuous knowledge sharing 50 25

26 Peer Review Engagement Selection Process 51 Engagement Selection Process Revised Interpretation 59-1 (effective for reviews commencing on or after July 1, 2011) Employee Benefit Plans For employee benefit plans under ERISA, the peer reviewer should consider whether the engagement selection process has adequately addressed the risks involved in limited versus full scope audits and in different types of benefit plans such as defined benefit, defined contribution, and voluntary health and welfare plans. If a firm has more than one of the above types of plans, the reviewer must consider the unique risks associated with that type of plan and document how these risks were addressed in the risk assessment. Peer reviewers should also consider audit firm experience such as how many ERISA audits the firm performs, the length of experience in performing these engagements, the size of the audit firm, team members with experience, and CPE/specialized training. Further consideration should be given to communications from regulatory agencies

27 Engagement Selection Process (continued) Peer Review Alert Unique risks associated with different types of ERISA plans: - Defined contribution plans participant account and allocation testing and timely remittance of participant contributions - Defined benefit plans actuarial present value of accumulated plan benefits and changes in the actuarial present value of accumulated plan benefits - Health and welfare plans benefit obligations and changes in benefit obligations (for example, claims payable, claims incurred but not reported, postemployment benefits, postretirement health care benefits, etc.) - Employee stock ownership plans (ESOPs) annual appraisal of securities and leveraged ESOPs - Other areas plans with a master trust arrangement, multiemployer plans, initial audits of plans, terminating plans, plan mergers, etc. 53 Changes to PRP 20,700 Employee Benefit Plan Audit Engagement Checklist 54 27

28 Changes to PRP 20,700 EBP Audit Engagement Checklist Effective for reviews commencing on or after July 1, 2011 Engagement Profile Type of engagement Type of report issued 55 Changes to PRP 20,700 EBP Audit Engagement Checklist (continued) SOC 1 (formerly SAS 70) Report(s) Which audit areas did you rely on SOC 1 (formerly SAS 70) report(s) to reduce substantive testing? What other procedures were performed in these audit areas? Where in the audit working papers are these audit procedures documented? Initial Audits What procedures were performed on the beginning balance of net assets available for benefits to audit the completeness and accuracy of participant data and records of prior years especially as they relate to participant eligibility, contributions and distributions; the amounts and types of benefits; the eligibility for benefits; and individual account balances? Where in the audit working papers are these audit responses documented? 56 28

29 Changes to PRP 20,700 EBP Audit Engagement Checklist (continued) Report and financial statement questions applicable to all types of EBP engagements combined into one section at the beginning of the checklist. Fair value measurement questions are included in this section. New Defined Contribution Plan Questions 403(b) plan specific questions in the new version of the checklist to be released soon. Effective for reviews commencing on or after August 1, Changes to PRP 20,700 EBP Audit Engagement Checklist (continued) 403(b) Plans or Arrangements If some or all inactive contracts or accounts that met the conditions of DOL FAB No were excluded from the plan, did the auditor consider the effect of the exclusions on the completeness of the financial statement presentation and restrictions on the scope of the audit? [AAG-EBP 3.65] Did the auditor perform procedures to determine if the population is complete? [AAG-EBP 5.02] Consider the following: - Terminated participants with account balances in the plan - Participant directed transfers under Revenue Ruling Inactive participant accounts with the current vendor(s) or prior vendor(s) 58 29

30 Changes to PRP 20,700 EBP Audit Engagement Checklist (continued) 403(b) Plans or Arrangements (continued) Did the auditor adequately test eligibility for the universal availability standard? [AAG-EBP 10.02] Consider the following list of employees that may be excluded from a 403(b) plan: - Employees that will contribute $200 or less annually - Employees that participate in an eligible deferred compensation plan or another tax-sheltered annuity (401(k) or 457 plan) - Nonresident alien - Certain students and employees that work less than 20 hours per week Did the auditor apply appropriate procedures related to contributions? [AAG-EBP , 8.07] Consider the following: - Five-year post severance contributions - Fifteen-year catch up contributions 59 Changes to PRP 20,700 EBP Audit Engagement Checklist (continued) 403(b) Plans or Arrangements (continued) Are investments properly limited to annuity contracts or custodial accounts holding units of participation of regulated investment companies? [AAG-EBP 3.63] Are participant loans made directly with the insurance company and not from the Plan, not included in Plan assets and are these loans, and the collateral held by the Plan, properly disclosed in the footnotes to the financial statements? [AAG-EBP ] 60 30

31 Changes to PRP 20,700 EBP Audit Engagement Checklist (continued) Expanded Defined Benefit Plan Questions Statement of Accumulated Plan Benefits Is information regarding the actuarial present value of accumulated plan benefits as of either the beginning or end of the plan year presented? (FASB ASC c) Consider the following: - Is information about the actuarial present value of accumulated plan benefits presented entirely in the same location, that is, entirely in a separate statement, on the face of another statement, or in the notes? (FASB ASC ) - If information about the actuarial present value of accumulated plan benefits is presented on the statement of net assets available for benefits, is the information as of the same date as the statement of net assets available for benefits? (FASB ASC ) - Is a prior-year statement of net assets and changes presented if beginning-of-year benefit information is used? (FASB ASC ) 61 Changes to PRP 20,700 EBP Audit Engagement Checklist (continued) Expanded Defined Benefit Plan Questions Statement of Accumulated Plan Benefits (continued) Is the total actuarial present value of accumulated plan benefits segmented into at least the following categories: (FASB ASC ) Consider the following: - Vested benefits of participants currently receiving payments (including benefits due and payable as of the benefit information date)? - Other vested benefits? - Nonvested benefits? 62 31

32 Changes to PRP 20,700 EBP Audit Engagement Checklist (continued) Expanded Defined Benefit Plan Questions Statement of Changes in Accumulated Plan Benefits Is information about changes in the actuarial present value of accumulated plan benefits presented entirely in the same location, that is, entirely in a separate statement, on the face of another statement, or in the notes? (FASB ASC ) Consider the following: - If information about changes in the actuarial present value of accumulated plan benefits is presented on the statement of changes in net assets available for benefits, is the information for the same period as the statement of changes in net assets available for benefits? (FASB ASC ) Did the entity report and properly disclose the changes in accumulated plan benefits? Consider the following: - Are changes in the actuarial present value of accumulated plan benefits including amendments, changes in actuarial assumptions, and nature of the plan (mergers, terminations or spin-offs) disclosed and accounted for? (FASB ASC ) 63 Changes to PRP 20,700 EBP Audit Engagement Checklist (continued) Expanded Health and Welfare Plan Questions Benefit Obligations - Is information regarding the plan s benefit obligations as of the end of the plan year presented in a statement of plan benefit obligations, a statement of benefit obligations and net assets available for benefits, or in the notes to the financial statements? (All of the information must be in one place.) [Paragraphs 1 2 of FASB ASC ] Changes in Benefit Obligations - Is information regarding changes in the plan s benefit obligations for the plan year presented in a statement of changes in plan benefit obligations, in a statement of changes in benefit obligations and net assets available for benefits, or in the notes to the financial statements? (All of the information must be in one place.) [FASB ASC ] 64 32

33 Changes to PRP 20,700 EBP Audit Engagement Checklist (continued) Expanded Health and Welfare Plan Questions (continued) Changes in Benefit Obligations (continued) - Do the changes in benefit obligations include, as a minimum, changes resulting from: [FASB ASC ]? Consider the following: - Plan amendments - Changes in the nature of the plan (mergers and spinoffs) - Changes in actuarial assumptions 65 Changes to PRP 20,700 EBP Audit Engagement Checklist (continued) Section III. Working Paper Areas Significant audit areas matrix removed Questions added to each section: - Did the firm appropriately identify this area as a significant audit risk in their risk assessment? [AU 318] - Is the audit response linked to the risk assessment and is the response sufficient? [AU 318] - Is the audit documentation appropriate and did the firm comply with all relevant professional standards? [AU 339] 66 33

34 Changes to PRP 20,700 EBP Audit Engagement Checklist (continued) Section III. Working Paper Areas (continued) The following working paper areas are deemed to be significant and must be completed - Investments and Investment Income (including interest bearing cash) - Contributions Received and Related Receivables - Benefit Payments - Administrative Expenses - Commitments and Contingencies - Participant Data and Plan Obligations - Other Considerations 67 Common Areas of Noncompliance in Employee Benefit Plan Audits 68 34

35 Investments Common Areas of Noncompliance No audit work performed or no audit documentation Failure to test end of year market values Failure to obtain proper certification for limited scope audit Inadequate or missing disclosures related to investments Failure to document the evaluation of investment contracts for benefit responsiveness Failure to evaluate the guaranteed investment contract for benefit responsiveness Key Issues Test valuations confirmed by Trustee Obtaining Common Collective Trust Funds (CCT) unit values Understanding the nature of investments Assessing proper disclosure and supplemental schedules Following up on inconsistencies on the custodian reports and supplemental schedules 69 Contributions Common Areas of Noncompliance No audit work performed or no audit documentation No audit program Insufficient testing on contributing employers for multi-employer plans Failure to test payroll internal controls Failure to test employee elective deferrals Inappropriate reliance on SAS 70 report(s) Timeliness of participant contributions not tested Key Issues Documentation of testing internal controls for payroll Establishing payroll register is reliable Testing authorization of elective deferrals Defining compensation No paper trail Obtaining confirmation responses Alternative procedures to confirmations 70 35

36 Benefit Payments Common Areas of Noncompliance No audit documentation or no audit work performed Failure to test participant eligibility to receive benefit payments Inappropriate reliance on SAS 70 report(s) Failure to test approval of benefit payments Key Issues Eligibility to receive benefit When are distributions permitted Obtaining confirmation responses Viewing canceled checks or verification of proper receipt 71 Participant Data Common Areas of Noncompliance No audit work performed or no audit documentation of testing participant data Testing of payroll data insufficient No testing of participant eligibility or forfeitures No testing of investment income allocation to participants Inadequate or missing disclosures Key Issues GAAS requires to test allocation of total net assets to participate accounts Obtaining confirmations from participants Obtaining payroll data Defining eligibility requirements Obtaining forfeiture information Testing allocation of investment income to participant accounts 72 36

37 Peer Review Firm Considerations and Administrative Changes Related to EBP Engagements 73 Firm Considerations Quality Control CPE especially 403(b) Plan specific (Human Resources) Client acceptance Engagement performance (Engagement Quality Control Review (EQCR)) Overall experience of engagement team 74 37

38 Administrative Changes 403(b) plans are now segregated from other Defined Contribution Plans Industry code 380 Defined Contribution Plans Full & Limited Scope (excluding 403(b) plans) Industry code 383 Defined Contribution Plans Full & Limited Scope (403(b) plans only) Summary Review Memorandum (SRM) reflects this change too Peer reviewers should update their resume for these industry code changes Firms should also segregate 403(b) plans from other Defined Contribution Plans on their engagement listing for peer reviews 75 Part 2 Question & Answer Session 76 38

39 Upcoming AICPA Events AICPA Employee Benefit Plan Audit Workshop for Defined Benefit and Defined Contribution Plans, July 25 26, 2011, New York City, NY AICPA Conference, August 7 9, 2011, Portland, OR AICPA Peer Review How To Course, August 8 9, 2011, Portland, OR AICPA Employee Benefit Plans Accounting, Auditing and Regulatory Update Conference, December 12 13, 2011, Washington, DC 77 Thank you for participating! 78 39