Module 5 Overseeing and Managing Plan Audits Flashcards
What is the purpose of the ASUs (Accounting Standards Updates) issued by the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)?
New ASUs serve only to update the Codification and provide background infomration about the guidance
How does the Codification treat the accounting and reporting standard for employee benefit plans?
1) FASB ASC Topic 960 Plan Accounting - Defined Benefit Pension Plans establishes the accounting and financial reporting standards for defined benefit retirement plans
2) FASB ASC Topic 962, Plan Accounting - Defined Contribution Plans, includes the accounting and financial reporting standards for defined contribution retirement plans
3) FASB ASC Topic 965, Plan Accounting - Health and Welfare Benefit Plans, provides the accounting and financial reporting standards for health and welfare benefit plans
What is the purpose of ASC Topic 960?
established financial accounting and reporting standards for the annual financial statements of defined benefit pension plans
ASC Topic 960 applies to which plans?
all ongoing plans, funded or unfunded, that provide pension benefits for the employees of one or more employers or for the members of a trade or other employee association including the following:
1) plans subject to ERISA
2) plans not subject to ERISA
3) plans with no intermediary funding agency or plans that may be financed through one or more trust funds, one or more contracts with insurance entities, or a combination thereof
What are the accounting and reporting requirements of ASC Topic 960?
1) the plan financial statements should be prepared on the accrual basis of accounting and should include a statement of net assets available for benefits as of the end of the year
2) plan investments should be presented at their fair value, except for insurance contracts
3) information should be included about - the actuarial present value of accumulated plan benefits and - significant changes therein
4) accumulated plan benefit information may be disclosed in one of three places: on the face of the statements of net assets and on changes in net assets
5) the actuarial present value of accumulated plan benefits should be based on employees’ earnings and service rendered before the measurement date
Although ASC Topic 960 does not identify any one group as the primary users of plan financial statements, the content of these statements should focus on what group and why?
Plan participants because pension plans exist primarily for their benefit
Does ASC Topic 960 require financial statements that compare more than one year’s information?
it does not require comparative financial statements but it does recommend supplementing the financial statements with voluntary disclosures of matters deemed important
What supplemental informaiton does FASB recommend be included in the annual financial statements of a plan?
1) a statement that includes information regarding the net assets available for benefits as of the end of the plan year
2) a statement that includes information regarding the changes during the year in net assets available for benefits
3) information regarding the actuarial present value of accumulated plan benefits as of either the beginning or end of the plan year
4) information regarding the effects, if significant, of certain factors affecting the year to year change in the actuarial present value of accumulated plan benefits
What is the penalty the DOL can assess if a required auditor report for a qualified employee benefit plan is missing or deficient?
DOL can assess penalties on plan sponsors of up to $1,100 per day (capped at $50,000 per annual form 5500 report filing) where the required auditor report is missing or deficient
How has the level of significant deficiencies in plan sudits changed in recent years?
it has continued to increase
What were the results of the 2014 DOL audit quality study?
nearly four out of ten employee benefit plan audits had “Unacceptable-major” deficiencies that adversely affected overall audit quality and the the remaining plan audits either complied with professional auditing standards or had minor deficiencies
What is the Employee Benefit Plan Audit Quality Center (EBPAQC) and is there any evidence that this entity has any effect on the quality of plan audits?
it is a voluntary membership organization for firms that perform employee benefit plan suidts and its purpose is to promote the quality of plan audits
one or more generally accepted accounting standards (GAAS) deficiencies were found in 30% of audits performed by member firms - nonmembers had an 82% GAAS deficiency rate
What have the EBSA conducted studies to determine which factors have an impact on the quality of employee plan audits shown about the relationship between audit quality and (a) a CPA firm’s peer review rating and (b) the number of audits performed each year by the CPA firm?
(a) concluded that a CPA firm’s peer review rating had little bearing on the firm’s plan audit compliance
(b) audit firms that perform a smaller number of employee benefit plan audits each year tend to have a greater incidence of audit deficiencies
What penalties against CPA firms that perform deficient plan audits are available through ERISA?
ERISA currently provides EBSA no enforcement power to assess civil penalties against CPA firms performing deficient audits
What are the signs a plan sponsor should look for to see that audit work is actually being performed on the plan?
if the auditor is not making inquiries to understand how the plan operates and is not asking to plan sponsor records to complete audit testing, there is a good change the audit work is deficient
