EBPAQC Auditor Communications: Best
Practices and Common Pitfalls Live Forum




Webinar Troubleshooting Tips
Disable all pop-up blockers on your computer
You should be able to hear music, if not, you may need to do
one of the following:
 Verify that the volume on your computer is not muted
 If you are in Windows Media Player, please logout and try Real
Player
 If you are in Real Player, please logout and try Windows Media
Player
Most often any audio or video difficulties are at the local user
office so you may need to check with your IT administrator
If you are still having difficulties, please let us know by typing
your problem in the question box on the left hand side, and a
Genesys representative will assist you
Employee Benefit Plan Audit Quality Center
EBPAQC Live Forum
Auditor Communications: Best
Practices and Common Pitfalls
November 10, 2010
Panelists
Marilee Lau
Marilee Lau CPA
Bob Lavenberg
BDO USA, LLP
Carl Kampel
Ellin and Tucker, Chartered
Debbie Smith
Grant Thornton LLP
Employee Benefit Plan Audit Quality Center
CPE Credit For Participating
Must have registered for CPE credit prior to this live
forum
• CPE Credit Approval Form posted on webinar
instruction site
Listen for announcement of 4 CPE codes (7 digits:
ALL_ _ _ _ ) and 4 polling questions during the live
forum
Record CPE Codes on CPE Credit Approval Form
(no need to record polling questions)
Return completed form (by fax or mail) to AICPA
Service Center for record of attendance
Keep a copy of completed CPE Credit Approval
Form for your records
Employee Benefit Plan Audit Quality Center
Introduction
Bob Lavenberg,
CPA
BDO USA, LLP
Chair
EBPAQC Executive
Committee
Employee Benefit Plan Audit Quality Center
Objectives
Present best practices tips and common
deficiencies related to:
• Engagement Letters
• Management Representation Letters
Provide an overview of SAS 114 and SAS 115
Communications
Discuss various example control
deficiencies under different scenarios
Employee Benefit Plan Audit Quality Center
Engagement Letters
Marilee Lau,
CPA
Employee Benefit Plan Audit Quality Center
Engagement Letters
Establish an understanding with the client in
accordance with AU 311
Document the contractual duties agreed to by the
auditor and the client
Explain the auditor’s and the client’s responsibilities
Explain the nature of services to be rendered by the
auditor and establish that financial statements are
the responsibility of the client
Helps avoid misunderstandings with the client
Employee Benefit Plan Audit Quality Center
Common Errors
Letter not properly addressed
Letter not sent or obtained before work commences
Scope of audit incorrect
Type of plan is incorrect
Schedule names or inclusion is incorrect
Trustee/custodian not properly identified
Employee Benefit Plan Audit Quality Center
Common Errors, Continued
Form 5500/electronic filing not addressed
Non-attest services not addressed
Heading on page 2-6 not changed from prior client
template
Information in ( ) not addressed
Tailoring for specific situations (e.g., SEC 11-Ks,
outsourcing, use of experts, non CPAs)
Employee Benefit Plan Audit Quality Center
Management Representation Letters
Debbie Smith, CPA
Partner
Grant Thornton LLP
Employee Benefit Plan Audit Quality Center
Management Representation Letters
Auditor required to obtain written representations
from management as part of a financial statement
audit performed in accordance with GAAS
Representations are audit evidence, but are not a
substitute for application of auditing procedures
necessary to express an opinion
AU 333 lists specific representations that should be
obtained
If management refuses to furnish written
representations that auditor believes are necessary
it may constitute a scope limitation
Employee Benefit Plan Audit Quality Center
Common Errors
Poor tailoring- not specific to plan type, scope of
audit (full vs. limited), etc.
Contradictory- with other audit evidence and/or
financial statement disclosures
Doesn’t cover all financial statements and periods
covered by auditor’s report
Incorrectly dated- should be dated as of the date of
the auditor’s report
Not signed by appropriate individuals (e.g., those
responsible for financial and operating matters)
Employee Benefit Plan Audit Quality Center
Overview of SAS 114 and SAS 115
Communications
Carl Kampel, CPA
Partner
Ellin and Tucker,
Chartered
Employee Benefit Plan Audit Quality Center
Overview
Statement on Auditing Standards No. 114, The
Auditor’s Communication With Those Charged With
Governance (AU 380)
Employee Benefit Plan Audit Quality Center
Beginning of the Audit
The auditor’s responsibility under generally
accepted auditing standards (GAAS)
• Responsible for expressing an opinion on the
financial statements or explanation of limitations of
the auditors ability to express an opinion
• The planned scope and timing of the audit
Employee Benefit Plan Audit Quality Center
Beginning of the Audit, Continued
Approach to internal control
• Service provider controls
• User (plan sponsor) controls
Risk assessment
Division of responsibilities
• Financial statements and notes – plan sponsor
• Auditor’s report – auditor
Materiality
Employee Benefit Plan Audit Quality Center
End Of The Audit
Qualitative aspects of accounting policies,
practices, estimates and disclosures
Any serious difficulties in completing the
audit or disputes with management
• Unavailability of expected information
• Restrictions imposed by management
Employee Benefit Plan Audit Quality Center
End Of The Audit, Continued
Qualitative aspects of accounting policies,
practices, estimates and disclosures
Any serious difficulties in completing the
audit or disputes with management
• Unavailability of expected information
• Restrictions imposed by management
Employee Benefit Plan Audit Quality Center
Overview
Statement on Auditing Standards
No. 115, Communicating Internal Control Related
Matters Identified in an Audit
(AU 325)
Employee Benefit Plan Audit Quality Center
Communications
Auditors are required to obtain an understanding of
internal control and may become aware of
deficiencies, which will be communicated to those
charged with governance
Deficiencies in internal control – A deficiency in
internal control exists when the design or operation
of a control does not allow management or
employees, in the normal course of performing their
assigned functions, to prevent, or detect and correct
misstatements on a timely basis
Employee Benefit Plan Audit Quality Center
Form of Communications
With those charged with governance
Internal control related matters
Employee Benefit Plan Audit Quality Center
Required Communications
Significant deficiencies – a significant deficiency is
a deficiency, or a combination of deficiencies, in
internal control that is less severe than a material
weakness, yet important enough to merit attention
by those charged with governance
Material weaknesses – a material weakness is a
deficiency, or combination of deficiencies, in
internal control, such that there is a reasonable
possibility that a material misstatement of the Plan’s
financial statements will not be prevented, or
detected and corrected on a timely basis
Employee Benefit Plan Audit Quality Center
Example Control Deficiency # 1
Plan sponsor does not have the ability
to prepare or review the financial
statements
Employee Benefit Plan Audit Quality Center
Example Control Deficiency # 2
Plan sponsor has outsourced the
administration functions of the plan
with no oversight by management
Employee Benefit Plan Audit Quality Center
Example Control Deficiency # 3
SAS No. 70 report with significant
testing exceptions that are not
mitigated by controls at the plan
sponsor
Employee Benefit Plan Audit Quality Center
Example Control Deficiency # 4
Lack of controls when changing
service providers and ensuring proper
information has been transferred to the
new service provider
Employee Benefit Plan Audit Quality Center
Example Control Deficiency # 5
For plan mergers, the recording of net
appreciation and transfer amounts may
be incorrect due to timing of the
accounting for the merger
Employee Benefit Plan Audit Quality Center
Example Control Deficiency # 6
Improper valuation of investments,
especially alternative investments
Employee Benefit Plan Audit Quality Center
Example Control Deficiency # 7
Plan management does not have the
ability (methodology and process) to
determine reasonableness of actuarial
assumptions
Employee Benefit Plan Audit Quality Center
Example Control Deficiency # 8
IBNR is not accurately calculated or
recorded
Employee Benefit Plan Audit Quality Center
Example Control Deficiency # 9
Benefit payments are not calculated in
accordance with plan documents
Employee Benefit Plan Audit Quality Center
Example Control Deficiency # 10
Lack of performance of tax compliance
testing such as discrimination testing
or lack of taking appropriate corrective
action when errors are found in such
testing and other operational errors
Employee Benefit Plan Audit Quality Center
Example Control Deficiency # 11
Prohibited transactions such as
timeliness of employee contributions
or improper transactions with partiesin-interest and fiduciaries
Employee Benefit Plan Audit Quality Center
Resources
EBPAQC Plan Advisory, Understanding
Auditor Communications
EBPAQC SAS No. 115 Tools and Resources:
• Examples of Internal Control Communications for
Employee Benefit Plans
• Summary of SAS No. 115 Requirements
• SAS No. 115 Frequently Asked Questions
Employee Benefit Plan Audit Quality Center
Question and Answer Session
Employee Benefit Plan Audit Quality Center
Coming Events
Mark Your Calendars!
Upcoming EBPAQC Live Forum Webinars:
• Designated Partner Live Forum—2011, January 19, 2011,
1:00-3:00 pm ET
• Managers & Supervisors Live Forum—2011, January 26,
2011, 1:00-3:00 pm ET
• 11-K Audits Live Forum, March 16, 2011, 1:00-3:00 pm ET
Upcoming AICPA Conferences:
• December 13-14, 2010, EBP Accounting, Auditing and
Regulatory Update, Omni Shoreham Hotel, Washington, DC
• May 2-4 2011, National Conference on Employee Benefit Plans,
Aria, Las Vegas, NV
Employee Benefit Plan Audit Quality Center
Wrap Up
Consider using the
EBPAQC
Member-to-Member Forum
Employee Benefit Plan Audit Quality Center
Evaluation
We welcome your feedback on today’s call
Please complete the online evaluation
http://www.zoomerang.com/Survey/WEB22BET67DMCB
Thank you!!!
Employee Benefit Plan Audit Quality Center
Thanks for Participating!