2.05 - Private Securities Litigation Reform Act and PCAOB Standards

Question 1

2.05 - Private Securities Litigation Reform Act and PCAOB Standards

The controller of a small utility company has interviewed audit firms
proposing to perform the annual audit of their employee benefit plan. According to the guidelines of the Department of Labor (DOL), the selected auditor must be

A) Independent of the utility company and not relying on its services.

B) Included on the list of rms
approved by the DOL.

C) The firm that proposes the lowest fee for the work required.

D) Independent for purposes of examining financial
information required to be filed annually with the DOL.

Answer 1

D) Independent for purposes of examining financial
information required to be filed annually with the DOL.

The DOL requires an auditor to be independent when auditing an employee benefit plan and prohibits the auditor from…

…having a direct or material indirect interest in the plan or its sponsor;

…serving as promoter, underwriter, investment advisor voting trustee, director, officer, or employee of the plan or the sponsor;

…or from maintaining financial records for the plan.

There is no requirement that the audit be performed by the firm quoting the lowest fee. Nor is there a list of approved firms.

Relying on the services of the sponsor utility company does not impair the auditor’s independence and, in fact, the auditor may not have
a choice of utility provider.