Time to Think About 401(k) Audits
By Sara Johnson, CPA, Audit Manager
Vrakas is proud to audit over 80 employee benefit plans each year. Our team’s emphasis is to ensure your plan is being served by qualified professionals who not only can provide the compliance audit services that you require, but can also provide communication of audit results that go beyond the standard auditors’ report.
The Employee Retirement Income Security Act of 1974 (ERISA) requires employee benefit plans with 120 or more eligible participants as of the first day of the plan year to undergo an annual independent audit. The audit and required filings are due seven months after the end of the plan year. An extension can be filed to extend the deadline by two and a half months.
Importance of audit quality
In May 2015, the Employee Benefits Security Administration, which is part of the Department of Labor (DOL), released results of its most recent study on audit quality and reported that 39% of the audits contained major deficiencies in regard to one or more applicable requirements. The study included the following findings.
- There is a link between the number of employee benefit plan audits conducted by an auditor and the quality of the audit work. Firms that perform as few as 1-2 employee benefit plan audits annually have the highest deficiency rate (76%).
- Firms that were members of the AICPA Employee Benefit Plan Audit Quality Center (EBPAQC) generally had fewer audit deficiencies.
- Training specifically targeted at employee benefit plan audits may contribute to improved audit work.
In connection with the study the DOL issued a letter regarding the importance of audit quality and hiring an experienced employee benefit plan auditor.
As noted above, Vrakas currently audits over 70 employee benefit plans each year. As employee benefit plan audit specialists, we are very familiar with the required auditing procedures and regulatory requirements.
We are a member of the EBPAQC. The EBPAQC provides members with best practices, guidelines and tools CPAs need to perform quality benefit plan audits and better serve their clients.
We understand that employee benefit plan audits are unique. Because of this we ensure our professionals receive the continued professional education necessary to keep up with employee benefit plan developments, technical guidance, regulatory requirements and compliance issues. This includes having some employees attend the annual AICPA Employee Benefit Plan Conference and various other applicable seminars.
We are licensed by the Wisconsin Department of Safety and Professional Services – Accounting Examining Board. The Wisconsin Administrative Code (which governs the Board) requires our firm to undergo a peer review of our accounting and auditing practice every three years. The peer review standards require CPA firms to design and comply with a system of quality control that provides the firm with reasonable assurance that we are performing and reporting in conformity with professional standards. The peer review program’s primary objective is to protect the public interest by improving the quality of services performed by AICPA members in public practice. This peer review includes scrutiny of our employee benefit plan audit work.
We also keep up with the latest changes in accounting standards. In July 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-12, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): (Part 1) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient. The ASU is effective for fiscal years beginning after December 15, 2015, with early adoption permitted. FASB issued this update to reduce complexity in employee benefit plan accounting. The objective is to identify, evaluate and improve areas of generally accepted accounting principles for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements.
- Extensive experience with defined contribution plans, defined benefit plans and employee stock ownership plans (ESOPs)
- Standardized approach to efficiently address all audit requirements
- Active involvement of experienced employee benefit plan auditors during all stages of engagement
- Consistent audit team year over year
- Exit meetings covering findings, regulatory updates and suggested areas of improvement