Audit Communications
and
DOL Update
Limited Scope vs. Full Scope Audit
Disclaimer of Opinion &
Audit Communications
Dawn Doucette, Audit Senior
Manager
David Murray, Audit Senior
Manager
Limited Scope vs Full Scope Audit
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ERISA section 103(a)(3) allows the plan administrator to instruct the
auditor not to perform any auditing procedures with respect to
investment information prepared and certified by a bank or similar
institution or by an insurance carrier that is regulated, supervised, and
subject to periodic examination by state or federal agency who acts as
trustee or custodian.
This election is available, however, only if the trustee or custodian
certifies both the accuracy and completeness of the information
submitted.
The limited-scope audit exemption is implemented by 29 CFR 2520.1038 of the DOL’s Rules and Regulations for Reporting and Disclosure under
ERISA.
The limited-scope exemption does not exempt the plan from the
requirement to have an audit.
Limited Scope vs Full Scope Audit
(continued)
•
The exemption only applies to the investment information certified by
the qualified trustee or custodian, and does not extend to participant
data, contributions, benefit payments or other information whether or
not it is certified by the trustee or custodian.
IRS Approved List
Nonbank Trustees Approved as of April 1, 2014
American Enterprise Investment
Services, Inc.
Croatian Fraternal Union of America
GuideStone Trust Services
BB&T Securities, LLC
D.A. Davidson & Co.
Hartford Life Insurance Co.
SUB HEADING ONE
Deutsche Bank Securities Inc.
Barclays Capital, Inc.
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Clearing
LLC
Edward D. Jones & Co., L.P.
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Charles
Schwab & Co.,
Inc.
First Clearing, LLC (FKA First Clearing
square
area.
Hartford Securities Distribution Co.
HealthEquity, Inc.
Illinois Mutual Life Insurance Co.
ING Direct Investing, Inc.
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Church Extension Plan
First Investors Corporation
ISDA Fraternal Association
Citi Fund Services, Inc.
Goldman, Sachs & Co.
J.J.B. Hilliard, W.L. Lyons, LLC
Citigroup Global Markets, Inc.
Greater Beneficial Union of the USA
J.P. Morgan Clearing Corp.
Commonwealth of Kentucky
Greek Catholic Union of the U.S.A.
Janney Montgomery Scott, LLC
http://www.irs.gov/Retirement-Plans/Approved-Nonbank-Trustees-and-Custodians
IRS Approved List
Nonbank Trustees Approved as of April 1, 2014 (continued)
John Hancock Life & Health Insurance Co.
National Slovak Society of the USA
Piper Jaffray & Co
MEGA Life and Health Insurance Co.
Oxford Life Insurance Company
Polish Falcons of America
SUB HEADING ONE
PayFlex Systems USA, Inc.
Merrill, Lynch, Pierce, Fenner & Smith, Inc.
Principal Life Insurance Company
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Financial Services, Inc.
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MII Life,
Inc. dba Select
Account
Perkins Coie Trust Company
Mesirow Financial, Inc.
RBC Capital Markets
Reserve Management Company, Inc.
Moody Bible Institute of Chicago
Pershing LLC
Ridge Clearing and Outsourcing
Solutions
Morgan Stanley & Co. Incorporated
PFS Investments, Inc.
Robert W. Baird & Co., Inc.
Morgan Stanley Smith Barney
Pioneer Investment Management USA
Sanford C. Bernstein & Co., LLC
http://www.irs.gov/Retirement-Plans/Approved-Nonbank-Trustees-and-Custodians
IRS Approved List
Nonbank Trustees Approved as of April 1, 2014 (continued)
Scottrade, Inc.
UBS Financial Services, Inc.
Serb National Federation
Ukrainian National Association
SMASUB
Services, HEADING
Inc.
Southwest
Inc.
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Stephens,
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square area.
Sterne, Agee & Leach, Inc.
Wells Fargo Advisors, LLC
Stifel, Nicolaus & Co., Inc.
StockCross Financial Services, Inc.
TD Ameritrade Clearing, Inc.
http://www.irs.gov/Retirement-Plans/Approved-Nonbank-Trustees-and-Custodians
Limited Scope vs. Full Scope Audit
Comparison of Major Aspects of Full Scope Audits and Limited Scope Audits
Audit Aspects
Full Scope Audit
Limited Scope Audit
Provides auditor's opinion on plan's financial
Yes (unqualified, qualified, or adverse opinion)
No (disclaimer of opinion).
statements
Auditor audits plan investments
Yes. Auditor tests for existence, valuation,
No. Plan sponsor instructs auditor not to test
completeness, ownership and proper disclosures.
investments (including the value of the investments
and any income thereon) that are covered by the
certification (including hard to value assets).
SUB HEADING ONE
Requires addressing hard to value asset issues for
financial reporting
Plan sponsor must assert proper values in the plan's Plan sponsor must assert proper values in the plan's
financial statements. Auditor needs to address hard financial statements. Auditor is instructed not to
to value asset issues.
audit hard to value assets if they are properly
covered by the certification.
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Audit scope
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contributions, benefit payments, internal controls
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over financial
reporting, area.
and overall presentation of
financial statements
Fraud evaluation
Audit identifies any internal control, compliance or
operational issues
Yes, except the auditor does not evaluate internal
controls for certified investments and generally
cannot evaluate whether the plan's financial
statements overall are presented in accordance
with GAAP due to the significance of the certified
investments reported but not audited.
Auditor obtains reasonable, but not absolute,
Same as full scope audit except the auditor does not
assurance that the financial statements are not
test certified investments for possible fraud; thus
materially misstated due to fraud. Not all fraud may any fraud, with respect to certified investments
be detected in an audit. A well-concealed or
would likely avoid detection by the plan's auditor.
insignificant fraud may avoid detection.
Yes. Significant matters detected by the auditor are
reported to those charged with plan governance.
Same as full scope audit except that matters related
to certified investments are not tested by the
auditor.
Disclaimer of Opinion
Disclaimers of opinion are sometimes issued by an auditor.
This type of auditor’s statement essentially makes it clear
that the auditor is not in a position to express a specific
opinion on the overall status of the financial records of the
Plan. This letter may be issued when there is any type of
situation (i.e. investments certified by custodian/trustee)
where the auditor is not able to complete procedures to
his or her satisfaction.
Disclaimer of Opinion
(continued)
• The actual structure of a disclaimer of opinion may vary
slightly from one instance to another. However, the letter will
contain three specific pieces of information in all cases:
• First, the auditor will formally state that he or she is unable
to express an opinion as permitted by the Department of
Labor.
• The next section will identify the specific reasons why the
auditor is unable to provide an unqualified opinion (because
the Plan investments were certified by an authorized third
party).
• As a third element, the auditor will provide any reservations
present in regard to the financial records that were
provided.
Disclaimer of Opinion
(continued)
• Essentially, the opinion is a letter from the accountant stating
that the financial statements are in accordance with generally
accepted accounting standards. The disclaimer of opinion
issued during a DOL limited scope audit is due to the lack of
procedures performed on investments, and make it impossible
for the auditor to affirm the completeness of the information
provided.
DOL Limited-scope
Audit Engagement Letter
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Required by the Department of Labor’s (DOL) Rules and
Regulations for Reporting and Disclosure under ERISA to be
filed with Form 5500
Comprise the statements of net assets available for benefits
Related statement(s) of changes in net assets available for
benefits
Notes to the financial statements
Supplementary information accompanying the financial
statements
• Assets (Held at End of Year)
• Delinquent Participant Contributions
DOL Limited-scope
Audit Engagement Letter
(continued)
Audit Objective
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•
We will not perform any auditing procedures with respect to
information prepared and certified to by, the trustee, in
accordance with DOL Regulation 2520.103-5, other than
comparing the information with the related information included
in the financial statements and supplemental schedules. Because
of the significance of the information that we will not audit, we
will not express an opinion on the financial statements and
supplemental schedules taken as a whole.
We cannot provide assurance that a limited-scope disclaimer of
opinion as permitted by Regulation 2520.103-8 of the DOL’s Rules
and Regulations for Reporting and Disclosure under ERISA will be
expressed.
DOL Limited-scope
Audit Engagement Letter
(continued)
Audit Procedures
• At the conclusion of our audit, we will require certain written
representations from you about the financial statements and
related matters.
DOL Limited-scope
Audit Engagement Letter
(continued)
Management Responsibilities
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Oversee the services by designating an individual, preferably from senior
management, with suitable skill, knowledge, and/or experience; evaluate
the adequacy and results of the services; and accept responsibility for
them.
You are responsible for establishing and maintaining internal controls,
including monitoring ongoing activities; for the selection and application
of accounting principles;
For the preparation and fair presentation of the financial statements in
conformity with U.S. generally accepted accounting principles.
Responsible for making all financial records and related information
available to us and for the accuracy and completeness of that information,
including the completeness and accuracy of the certification by the
trustee.
Communication with Those Charged with
Governance during Planning
Main Items Discussed:
• Our Responsibility under U.S. Generally Accepted Auditing
Standards
• Planned Scope and Timing of the Audit
• When we expect to begin our audit and the issuance date
(extended filing deadline of October 15).
Standard Plan Inquiries
Commitments & Contingencies
• Any consultations with legal counsel
• Any IRS examinations in progress
• Are you in compliance with the fidelity bonding requirements
Standard Plan Inquiries
(continued)
Subsequent Events
• Amendments to the Plan or trust instruments since year end
• Decisions after plan year end to terminate the plan
Standard Plan Inquiries
(continued)
Fraud or Illegal Acts
• Errors, irregularities, or illegal acts concerning the Plan
• Instance of actual or suspected fraud affecting the Plan
• Areas(s) that would be susceptible to fraud relating to the Plan for
which we would need to focus our attention
Standard Plan Inquiries
(continued)
Board Meeting Minutes
• Any board or governing body meeting minutes during the Plan year
which specifically address any matters related to the Plan.
Management Representation Letter
Financial Statements
•
We confirm, to the best of our knowledge and belief, as of, the following
representations made to you during your audit:
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•
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We have fulfilled our responsibilities, as set out in the terms of the audit
engagement letter
The financial statements are fairly presented in conformity with U.S. GAAP,
the notes include all disclosures required by laws and regulations to which
the plan is subject, including the DOL Rules and Regulations for Reporting
and Disclosure under ERISA, and the supplemental schedules referred to
above are fairly presented in conformity with the Department of Labor’s
Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974.
All events subsequent to the date of the financial statements and for which
U.S. GAAP requires adjustment or disclosure have been adjusted or
disclosed.
Management Representation Letter
(continued)
Information Provided
• Access to all information
• We have no knowledge of any fraud or suspected fraud that
affects the plan
• Intentions to terminate the plan
• Amendments to the plan instrument, if any, have been
properly recorded or disclosed in the financial statements
Management Representation Letter
(continued)
Information Provided
(continued)
• The plan (and the trust established under the plan) is
qualified under the appropriate section of the Internal
Revenue Code and we intend to continue them as a
qualified plan (and trust).
• The plan has complied with the Department of Labor’s
regulations concerning the timely remittance of
participant contributions to trusts containing assets for
the plan.
• The plan has complied with the fidelity bonding
requirements of ERISA.
Communication with Those Charged with
Governance at Audit Conclusion
Significant Audit Findings
Qualitative Aspects of Accounting Practices
• You are responsible for the selection and use of
appropriate accounting policies.
Difficulties Encountered in Performing the Audit
• We encountered no significant difficulties in performing
and completing our audit.
Communication with Those Charged with
Governance at Audit Conclusion
(continued)
Significant Audit Findings (continued)
Disagreements with Management
• For purposes of this letter, a disagreement with
management is a financial accounting, reporting, or
auditing matter, whether or not resolved to our
satisfaction, that could be significant to the financial
statements or the auditor’s report. We are pleased to
report that no such disagreements arose during the course
of our audit.
Communication of
Significant Deficiencies
Most common findings we see relate to:
• Waiver forms
• Incorrect employer matching
• Incorrect vesting
• Inability to verify deferral percentages
• Delinquent contributions