EBPAQC 2010
Form 11-K Audit Live Forum
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1
Employee Benefit Plan
Audit Quality Center
2010 Form 11-K Audit
Live Forum
March 23, 2010
2
Presenters
Marilee Lau, CPA
Chair
EBPAQC Executive Committee
Hal Hunt, CPA
Mayer Hoffman McCann P.C
Lee Piper, CPA
PricewaterhouseCoopers LLP
Darrel Schubert, CPA
Ernst & Young LLP
William Seymour, CPA
SB & Company, LLC
.
3
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record polling questions)
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• Keep a copy of completed CPE Credit Approval Form for your
records
4
Introduction
Marilee Lau, CPA
Chair
EBPAQC Executive
Committee
5
Today’s Forum
• PCAOB/SEC report requirements and PCAOB inspections
• Fair value of alternative investments using net asset value and
other investment valuation issues
• New requirements related to subsequent events - ASC 855 (FAS
165)
• A brief look at PCAOB AS No. 7
• Auditor communications
• Prohibited services
• The DOL new EFAST 2 filing system and how this may affect
your 11-K audit clients
6
PCAOB/SEC Report Requirements
& PCAOB Inspections
Hal J. Hunt, CPA
Partner
Mayer Hoffman McCann PC
7
PCAOB/SEC Report
Requirements
8
Public Company Accounting
Oversight Board (PCAOB)
Established in 2002
CPA firms must register with the PCAOB before preparing or
issuing audit reports on financial statements of “issuers”
• An “issuer” is any public company, including a non U.S. company,
that is required to file reports with the SEC or that has filed with
the commission a registration statement for a public offering of its
securities.
• An “issuer” includes employee stock purchase, savings and
similar plans for which Forms 11 K are filed with the commission.
9
SEC Rules and Regulations
•
•
•
•
Form S-8
Form 11-K
Exemptions
Consents
10
Form S-8
• Registration of employer stock to be issued pursuant to
an employee benefit plan
• Registration of participants’ interest in a plan if:
– Plan is both voluntary and contributory and
– Not managed by an insurance company (separate
account) or a bank (common trust fund) or
– A single-employer plan in which employee
contributions are invested in employer securities
• Determination based on advice SEC counsel!
11
Form 11-K
• For Annual Reports of Employee Stock
Purchase, Savings and similar plans,
interest in which constitutes securities
registered under Securities Act of 1933
– Existing plan which adds employer securities
– New plan which includes employer securities
12
Filing Requirements
• Due Dates
– 90 days after the end of the fiscal year of the Plan if
filed under SEC format
– Plans subject to ERISA and using the ERISA format
within 180 days after the end of the fiscal year of the
Plan
• Late filings
– Could have an effect on Registrant
– 12b-25 Extension request for 15 calendar days
13
Financial Statements and Schedules
• SEC Format Section 15(d)
– Article 6A of Regulation S-X
– Presentation and disclosures are very different
– 2 years of statements of financial condition and 3 years of statements of
income and changes in plan equity
• ERISA Format
–
–
–
–
Full Scope Audit required/Limited Scope is not acceptable
Modified cash basis of accounting is acceptable
2 years of statements of net assets and 1 year of statement of changes
Prior year limited scope auditUpgrade of prior year audit required
14
Exemptions
• Audited Financial Statements not required in 11-K if:
– Less than 100 participants and filing in accordance with
ERISA
– Unaudited financial statements could be included in the
11-K filing
• Otherwise would need audited financial statements using
the SEC format
15
PCAOB Standard No. 1
References to PCAOB Standards
• Title of audit report for filings with SEC
– Report of Independent Registered Public Accounting Firm
• Must refer to standards of the Public Company
Accounting Oversight Board (United States) and cannot
refer to GAAS.
– SEC could reject filings if GAAS is referred to
• DOL Regulations require reference to GAAS
– DOL will accept dual references
– Could reject filings if the only reference is to PCAOB standards
16
Consents of Independent Auditors
• Auditor required to consent to the use of their
report in a 1933 Act registration statement
• Should be dated close to the filing date
(generally within 3 to 5 days in advance of
filing date)
17
Change in Auditors
• Form 8-K not required
• "Five-day letter" required by PCAOB rules to
report termination of client-auditor relationship
(SEC is copied on notification to client)
• Form 5500 Schedule C requires reporting of
change in auditor
• Two consents needed: predecessor & successor
• Effect on audit opinions
• Additional audit procedures required
18
PCAOB Inspections
19
The PCAOB Inspection Process
• Once registered and performing audits, the firm and its partners are
subject to the PCAOB requirements including inspection:
– Firms that audit 100 or more “issuers” are subject to annual
inspections.
– Firms that audit 100 or less “issuers” are subject to inspections
every three years.
The PCAOB is not only inspecting firms but also individual
accountants and others at firms who participate in audits of
“issuers”.
PCAOB inspections also include non-employees, such as
independent contractors who participate in the audit.
20
The PCAOB Inspection Process
• PCAOB inspections focus on the firm’s compliance with provisions of
Sarbanes Oxley which require:
– Certain non-audit services are prohibited!
• To be covered by Bill Seymour later in this webinar
– Certain non-audit services are permitted that are pre-approved by
an independent audit committee of the company.
21
The PCAOB Inspection Process
– Lead and reviewing partners must take a five year break from the
audit engagement after each five years of service, and audit
partners with lesser involvement take a break for two years after
seven years of service.
– Firms with fewer than five audit clients and 10 partners are exempt
from the partner rotation requirements. Exemption is not
automatically granted and depends upon the results of the triennial
PCAOB inspections and the competence of the key personnel of
the audit engagement teams.
22
The PCAOB Inspection Process
• Any person who was on the audit engagement team during the one
year period preceding the date that audit procedures commenced
does not currently work for the audit client in a financial reporting
oversight role
• Communications with the audit committee, beginning with the
execution of the engagement letter and through all stages of the audit
engagement
• Before the auditor's report on the financial statements is filed with the
SEC, there is evidence that the financial statements and any
accounting issues were discussed with the audit committee
23
The PCAOB Inspection Process
•
The PCAOB will also inspect compliance with its auditing, attestation, quality
control, ethical and independence standards.
–
•
•
The independence standards include Rule 2 01 of Regulation S X of the commission's rules
relating to auditor independence.
Under Sarbanes Oxley, any violation of the PCAOB's rules will be treated in
the same manner and subject to the same penalties as a violation of the
Exchange Act.
The inspectors will review client acceptance and continuance policies,
including documentation evidencing background checks and other
considerations.
24
The PCAOB Inspection Process
The PCAOB inspectors will approach the inspection with the emphasis
on “tone at the top”
– Owners of the firm will be interviewed to access their commitment
to audit quality, how they are compensated and their criteria for
employee promotion.
– Employees and prospective partners will be interviewed to
determine what message is being disseminated throughout the
firm and what they need to do to advance in their careers with the
firm.
– Inspectors will compare the information obtained from the firm’s
owners with the information obtained from the firm’s employees
and any discrepancies will be noted.
25
The PCAOB Inspection Process
• The best way to prepare for a PCAOB inspection is for the firm to have
a rigorous and regular internal inspection program:
– The PCAOB considers the firm's internal inspection process one of
the most important components of quality controls.
– A firm's internal inspection should include testing the firm's
compliance with quality controls, reviewing selected engagements,
summarizing the findings, determining the corrective actions to be
taken as a result of any deficiencies, communicating the
inspection findings and suggested improvements to the personnel
involved, following up to make sure the corrective actions are
implemented and documenting all of the above.
26
The PCAOB Inspection Process
• Internal inspection will likely choose (as will the PCAOB in its
inspection) engagements with a high level of assessed risk such as:
– restatements,
– litigation,
– investigations or turnover of auditors,
– engagements that have not been previously reviewed,
– and at least one engagement worked on by each audit partner at
the firm.
27
The PCAOB Inspection Process
Matters noted in past PCAOB inspections relating to 11-K audits related
to failure to perform and document adequate procedures with respect
to:
– Testing existence of investments
– Testing of investment valuations and transactions
– Testing of payroll data used in testing contributions
– Testing of participant loans and benefit payments
28
The PCAOB Inspection Process
• Audit documentation must contain sufficient information to enable an
experienced auditor, with no previous connection to the engagement
but with knowledge of the relevant industry and its accounting and
auditing issues, to understand the nature, timing, extent and results of
the procedures performed, the evidence obtained and the conclusions
reached.
• The documentation should also record who performed the work, the
date such work was completed, who reviewed the work and the date
of such review.
• The failure to prepare adequate documentation, particularly when the
risk of a material misstatement associated with an assertion is high, is
considered a serious violation of the PCAOB rules.
29
The PCAOB Inspection Process
• Documentation of auditing procedures related to the inspection of
significant contracts or agreements should include abstracts or
copies of the documents or refer to where they can be found.
• PCAOB inspectors expect documentation to include third-party audit
evidence.
– For example, obtain written confirmation of plan investments
• PCAOB inspectors are certain to ask what steps the firm has taken in
an audit engagement to detect fraud, as required by SAS 99.
30
The PCAOB Inspection Process
• 45 days after the audit report release date, a complete and final set of
audit documentation must be assembled for retention.
• Audit documentation must be retained for seven years from the date
that all necessary auditing procedures are completed, sufficient
evidence has been obtained and the auditor grants permission to use
the auditor's report, unless a longer period of time is required by law.
• After the document completion date, audit documentation must not be
deleted or discarded
– but information may be added to record audit procedures performed as long as it
indicates the date the information was added, the name of the person who prepared
the additional documentation and the reason for adding it.
31
The PCAOB Inspection Process
•
•
•
•
•
The PCAOB inspectors will likely conduct an exit interview with the firm or
with individual partners.
A draft inspection report points out any deficiencies that it found.
The firm may object to or otherwise comment on the draft inspection report
and may suggest steps that it may take to address any deficiencies.
The PCAOB may adopt its draft report as final, revise the draft report, or
continue or supplement the inspection before issuing a final report.
After a final inspection report is issued, the PCAOB makes it available for
review by the firm, and sends a copy to the commission and to each
appropriate state regulatory authority, together with the firm's response to the
draft report.
32
The PCAOB Inspection Process
• If a final inspection report contains criticisms of the firm’s quality
controls, the firm may demonstrate that it has improved such controls
no later than 12 months after the issuance of the PCAOB's final
inspection report.
• The PCAOB will notify the firm whether it deems the deficiencies to
have been adequately fixed, and if not, why not.
• If the PCAOB determines that the firm has adequately fixed the
deficiencies, it will notify the firm, the commission and any state
regulatory authority to which it had supplied the final inspection
report of this fact.
• Defects in the quality controls that the firm has not adequately
corrected during this time period shall be made public.
33
The PCAOB Inspection Process
• If an inspection leads to an investigation, the PCAOB may commence
a disciplinary hearing to determine whether there has been any
violations.
• A violation could result in the imposition of penalties, temporary
suspension or permanent revocation of the firm's registration; the
temporary or permanent suspension of a person from further
association with any registered public accounting firm; prohibiting a
firm from accepting new audit clients for a period of time; the
assignment of a supervisor to an associated person; requiring a firm
to terminate one or more audit engagements; requiring a firm to make
functional changes in supervisory personnel organization or in
engagement team organization
• .
34
The PCAOB Inspection Process
• A failed inspection could lead to a damaged
reputation or worse.
• The PCAOB and firms have one goal in
common: it is the protection of the
investing public
35
Online Resources
•
•
•
•
PCAOB: http://pcaobus.org/
SEC: http://www.sec.gov/
AICPA EBPAQC: http://ebpaqc.aicpa.org/
AICPA EBPAQC 11-K Audit Resources:
http://ebpaqc.aicpa.org/Resources/Accounting+and+Auditing+Resource+Centers/Form+11K+Audits+Resource+Center.htm
36
ASU 2009-12, Measuring the Fair Value of Alternative Investments
Using NAV (or Its Equivalent)
(a/k/a “The Practical Expedient”)
Lee Piper, CPA
Partner
PricewaterhouseCoopers
LLP
37
Overview
• Provides additional guidance on how entities should
estimate the fair value of certain alternative
investments such as hedge funds, private equity
funds, real estate funds, venture capital funds,
offshore funds and funds of funds
• Fair value can be determined using Net Asset Value
(NAV) as a practical expedient unless it is probable
that the investment will be sold at a price that is
different than NAV
38
Overview (continued)
• New disclosures of the attributes of all investments
within scope of the new guidance is required
regardless of whether the reporting entity uses “the
practical expedient”
• Effective for the first annual or interim reporting
period ending after December 15, 2009
39
Key Provisions
• A reporting entity is allowed to estimate the fair value
of certain alternative investments using NAV without
further adjustment if NAV is calculated consistent
with the guidance in ASC 946, Financial Services –
Investment Companies (formerly the AICPA Audit and
Accounting Guide, Investment Companies (“the
AICPA Guide”)) as of the reporting entity’s
measurement date
40
Key Provisions (continued)
• Does not apply to investments in entities for which
fair value is readily determinable, as defined in the
Master Glossary of the FASB Accounting Standards
Codification (formerly paragraph 3 of FASB Statement
No. 115, Accounting for Certain Investments in Debt
and Equity Securities)
41
Key Provisions (continued)
• Reflects the FASB’s desire to avoid potentially
arbitrary adjustments being made to NAV in
determining fair value and the FASB’s conclusion that
the benefit to financial statement preparers of
applying such an expedient outweighed the
associated costs and effort to make such adjustments
42
Scope
NAV can be used to estimate fair value provided
that:
– The investment in the entity has all the attributes of an
investment company as specified in ASC 946-10-15-2
(formerly paragraph 1.06 of the AICPA Guide), or
– If one or more of the attributes specified in ASC 946-1015-2 are not present, the investment is in an entity for
which it is industry practice to issue financial
statements using guidance consistent with ASC 946,
Financial Services – Investment Companies
43
Restrictions on Use
When it is probable that an entity will sell its
investment at an amount other than NAV, the
practical expedient cannot be used and the
guidance in ASC 820, Fair Value Measurements
and Disclosures, (formerly FASB Statement No.
157, Fair Value Measurements) should be
followed to estimate fair value in those instances
44
Restrictions on Use (continued)
A sale of an investment is considered probable only if
all of the following criteria are met:
– Management, having the authority to approve the action,
commits to a plan to sell the investment
– An active program to locate a buyer and other actions
required to complete the plan to sell the investment have
been initiated
– The investment is available for sale subject only to terms
that are usual and customary for sales of such investments
– Actions required to complete the plan indicate that it is
unlikely that significant changes to the plan will be made or
that the plan will be withdrawn
45
Required Disclosures
Required for all investments within the scope of ASU
2009-12 not just those for which the reporting entity has
elected to use “the practical expedient”
– Fair value of investments in each major category and a
description of the significant investment strategies of the
investee(s) in the major category
– For each major category of investment that includes
investments that can never be redeemed with the investees,
but the reporting entity receives distributions through the
liquidation of the underlying assets of the investees, the
reporting entity’s estimate of the period of time over which
the underlying assets are expected to be liquidated by the
investees
46
Required Disclosures (continued)
- The amount of the reporting entity’s unfunded
commitments related to investments in the major
category
- A general description of the terms and conditions
upon which the investor may redeem investments
in the major category
- The circumstances in which an otherwise
redeemable investment in the major category might
not be redeemable due to a restriction and an
estimate of when the restriction from redemption
might lapse
47
Required Disclosures (continued)
– Any other significant restriction on the ability to sell
investments in the major category at the measurement
date
– If it is probable that the reporting entity will sell an
investment for an amount different from NAV per share,
the entity shall disclose the total fair value of all
investments that meet the criteria in ASC 820-10-35-62
and any remaining actions required to complete the
sale
48
Required Disclosures (continued)
– If a group of investments would otherwise meet the
criteria in ASC 820-10-35-62 but the individual
investments to be sold have not been identified such
that the individual investments continue to qualify for
the practical expedient, the reporting entity shall
disclose its plans to sell and any remaining actions
required to complete the sale(s)
– Disclosures are required for each major category of
investments rather than for each individual investment
49
Question – What is a “major category”?
A major category is determined based on the nature
of risks of the investments, consistent with the
guidance for major security types for debt and
equity securities in ASC 320, Investments – Debt
and Equity Securities (formerly paragraph 19 of
FASB Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities)
50
Other Significant Clarifications
• The practical expedient can be applied on an investmentby-investment basis but must be applied consistently to
the entire investment in that entity
• If the measurement of NAV is not as of the reporting
entity’s measurement date, the most recent measure of
NAV should be adjusted to reflect significant events
between the measurement dates (i.e., a “roll-forward”
could be prepared)
51
Other Significant Clarifications
(continue)
• ASU provides guidance regarding classification in
the fair value hierarchy of investments within its
scope
– If reporting entity has ability to redeem its investment
with the investee at NAV per share at the measurement
date, the fair value measurement shall be categorized
as a Level 2 fair value measurement
– If the reporting entity will never have the ability to
redeem its investment with the investee at NAV per
share, the fair value measurement shall be categorized
as a Level 3 fair value measurement
52
Other Significant Clarifications
(continued)
– If a reporting entity cannot redeem its investment with
the investee at NAV per share at the measurement date
but the investment may be redeemable with the
investee at a later date, the reporting entity shall
consider the length of time until the investment will
become redeemable in determining whether the fair
value measurement of the investment shall be
categorized as a Level 2 or a Level 3 fair value
measurement
53
Implementation Guidance
Technical Practice Aids: TIS Sections
2220.18-.27 – Long-Term Investments are
intended to assist in implementing the
provisions of ASU 2009-12 to estimate the
fair value of investments in certain entities
that calculate NAV and are within the scope
of paragraphs 4 and 5 of ASC 820-10-15.
54
PCAOB and FASB Updates and Auditor
Communications
Darrel Schubert, CPA
Partner
Ernst & Young LLP
55
ASC 855, Subsequent Events
56
Amendment to ASC, 855
• On 24 February 2010, the FASB issued an
Accounting Standards Update to amend
ASC 855, Subsequent Events
• The guidance in the ASU was effective
immediately for all financial statements that
have not yet been issued or have not yet
become available to be issued
57
Summary of ASC 855:
Evaluation of Subsequent Events
• Entities that file a Form 11-K evaluate
subsequent events through the date the
financial statements are issued
• All other entities evaluate subsequent
events through the date that the financial
statements are available to be issued
58
Summary of ASC 855: Disclosure of
Subsequent Events Evaluation
• Form 11-K filers
– Do not disclose the date through which management evaluated
subsequent events
– Same treatment for originally issued financial statements and
reissued financial statements
• All other entities
– Disclose the date through which management evaluated
subsequent events for originally issued statements (available to be
issued)
– Do not have to disclose additional date when financial statements
are reissued unless the financial statements are revised for either
an error correction or retrospective application of US GAAP
59
Effect on the Auditor’s Report
• The report date should be when the auditor
has obtained sufficient appropriate audit
evidence
• Likely the same date that the entity’s
financial statements are “issued” (Form 11K filers) or “available to be issued” (all
other entities)
60
PCAOB Auditing Standard No. 7 –
Engagement Quality Review
61
Applicability and Effective Date
• Adopted by the PCAOB on 28 July 2009
• Approved by SEC on 15 January 2010
• Applies to audit engagements and engagements to review
interim financial information pursuant to the standards of the
PCOAB
• Supersedes PCAOB’s quality control standard, SECPS
Requirements of Membership, Section 1000.08(f); 1000.39,
Appendix E
• Effective for fiscal years beginning on or after 15 December
2009
62
Overview – PCAOB AS No. 7
• Provides a framework for the engagement quality reviewer
(EQR) to objectively evaluate the significant judgments made
and related conclusions reached by the engagement team in
forming the overall conclusion about the engagement
• Not intended to be a second opinion
• Focuses the EQR’s attention on areas that are most likely to
contain a ‘significant engagement deficiency’ and increase the
likelihood of identifying and correcting those deficiencies
before the audit report is issued
• Improvement to already important aspect of a firm’s system of
quality control
63
EQR Objective
•
Perform an evaluation of the significant judgments made and conclusions
reached by the engagement team in forming the overall conclusion on the
engagement
– Discussions with engagement partner and team and review of audit
documentation
– Did engagement team respond appropriately to significant risks; does
documentation for areas reviewed support the conclusions reached by the
team
– Provide concurring approval based on information that comes to
reviewer’s attention
– Withhold concurring approval if (1) team did not obtain sufficient
appropriate evidence, (2) team reached inappropriate overall conclusion,
(3) report is not appropriate or (4) firm is not independent of the client
64
Other Provisions
• Competence of reviewer - reviewer must possess the level of
knowledge and competence to serve as the person who has overall
responsibility for the same type of engagement
• Independence, integrity and objectivity - reviewer cannot make decisions
for the engagement team, assume any responsibilities of the
engagement team, or supervise the engagement team with respect to
the engagement subject to the engagement quality review
• An associated person of a registered public accounting firm -reviewer does
not need to be from the same accounting firm as the engagement
team
65
Staff Q&A on EQR Documentation
• On 10 February 2010, the PCAOB issued a Staff Q&A
providing implementation guidance for EQR
documentation
• The PCAOB clarified that the reviewer is not required to
document all interactions with the engagement team
• However, for a significant engagement deficiency, the
reviewer documents how the significant engagement
deficiency was communicated to the team, why it was
important and how EQR evaluated the team’s response
66
Communication Responsibilities
67
Reporting on Internal Control
Matters
• SAS 115 updated definitions to align with PCAOB
definitions
• Communicate both significant deficiencies and
material weaknesses in writing to management
and those charged with governance
• Timing of communication – prior to the issuance
of the auditor’s report
68
PCAOB Communication
Requirements
• Responsibility under GAAS
• Major issues discussed with
management prior to retention
• Significant audit adjustments
• Unadjusted misstatements
considered to be immaterial
• Auditor judgments about quality
of accounting principles
• Adoption of, or change in,
accounting principle
• Responsibility for other
information
• Methods of accounting for
significant unusual
transactions or for
controversial or emerging
areas
• Sensitive accounting
estimates
• Consultations with other
accountants
• Disagreements with
management
• Difficulties encountered in
performing the audit
69
Additional Requirements of SAS
114
• Planned scope and timing of audit
• Representations we are requesting from
management
• Other findings or issues arising from the audit
that are, in the auditor’s judgment, significant and
relevant to those charged with governance
• Certain matters related to going concern when
conclude that substantial doubt exists
70
SEC Communication
Responsibilities
• SEC rules require certain additional matters
to be communicated to audit committees
prior to filing the Form 11-K:
– All critical accounting policies and practices;
– All material alternative accounting treatments
discussed with management
– Other material written communications with
management
71
Prohibited Services and EFAST 2
William Seymour, CPA
Partner
SB & Company, LLC
72
Form 5500 Overview
•
•
•
•
All Forms 5500 must file electronically for plan years commencing on or after
January 1, 2010, except for 2008 Forms 5500
– Includes amended and late filing, except for 2008 Forms (2008 Form 5500
and 2008 amended and late filing use EFAST- (1) or paper)
An individual (e.g. officer of an employer, preparer) must register prior to
being able to file the return
– The following types of electronic credentials are available:
(1) filing author, (2) filing signer, (3) schedule author,
(4) transmitter, and (5) third-party software developer
2010 short years cannot use 2009 forms; can currently use i-File method
EFAST-(1) cannot be used after 10/15/2009
73
Schedule C
• Recordkeepers, TPAS still have lots of questions
• Anticipate delays in receiving the 5500s as vendors continue to
struggle with this form
• Rarely will the amounts reported on the Schedule C tie to the plan
expenses reported on the Form 5500 Schedule H
74
Schedule C Resources
•
http://www.dol.gov/ebsa/faqs/faq_scheduleC.html
•
http://www.dol.gov/ebsa/faqs/faq-sch-C-supplement.html
•
Questions concerning this guidance may be directed to EBSA’s Office of
Regulations and Interpretations at (202) 693-8523
75
FASB Codification Overview
•
The FASB Accounting Standard Codification (Codification) was launched on
July 1, 2009 becoming the single source of authoritative non-governmental US
GAAP (other than guidance issued by the SEC).
•
The Codification is not intended to change GAAP, it only changes the way
accounting issues are researched and US GAAP is referenced. This new
structure organizes pronouncements into an easily accessible and userfriendly manner.
76
FASB Codification Overview
(Continued)
•
•
This means that reference to certain common FASB standards in disclosure
notes to the financial statements, for example, will be referenced using the
new FASB codification.
The example below illustrates how FAS 157 and FAS 168 would be referenced
under the new codification.
Traditional FASB
NEW FASB Codification
Standard
Number
Paragraph
Sequence
Topic
Subtopic
Section
Paragraph
FAS
157
1
1.1.1.1.1
820
10
05
05-1
FAS
168
B3
1
105
10
05
05-1
77
FASB Codification Resources
• To prepare for the change, FASB offers a free online Codification
tutorial at http://asc.fasb.org/
• The Center for Audit Quality also prepared the Authoritative
Accounting and Reporting Standards for Employee Benefit Plans:
FASB Accounting Standards Codification. This can be located at the
Center’s website.
• The Codification Topics for plan accounting:
– 960 – Defined Benefit Plans
– 962 – Defined Contribution Plans
– 965 – Health and Welfare Plans
78
Prohibited Services Overview
•
•
•
•
•
Consistent with the direction of Section 208 (a) of the Sarbanes Oxley Act
(SOX) of 2002, rules were adopted to:
revise the regulations related to non-audit services that, if provided to an
audit client, would impair an accounting firm’s independence,
require an issuer’s audit committee to approve all audit and non-audit
services provided by the auditor of the issuer’s financial statements,
prohibit certain audit partners from performing key services for more than five
or seven years (ensuring partner rotation), and
prohibit an accounting firm from auditing an issuer’s financials if members of
the issuer’s management had been members of the accounting firm’s
engagement team one year prior to the audit
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Monitoring
• The audit committee and external audit function are designed to be
independent from management.
• The audit committee, therefore, must pre-approve all audit and nonaudit services provided by an auditing firm. Section 204 of SOX
mandates that the auditing firm report directly to the entity’s audit
committee, thus ensuring independence and preventing undue
influence from the entity’s management.
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Common Prohibited Services
•
•
•
•
•
•
•
•
•
•
•
Bookkeeping or other services related to the accounting records or financial statements
of the audit client;
Financial information systems design and implementation;
Appraisal or valuation services, fairness opinions, or contribution-in-kind reports;
Actuarial services;
Internal audit outsourcing services;
SOX 404 assistance;
Management functions or human resources;
Broker or dealer, investment adviser, or investment banking services;
Legal services and expert services unrelated to the audit;
Non-preapproved tax services and other tax services; and
Any other service that the Board determines, by regulation, is impermissible.
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Oversight
•
The Public Company Accounting Oversight Board (PCAOB) work in tandem
with the Securities and Exchange Commission (SEC) to oversee all public
accounting firms and public companies with the purpose of protecting the
public interest.
•
PCAOB has the legislated authority to discipline any violators of SOX. It has
the ability to conduct investigations and impose sanctions if deemed
necessary, including monetary penalties or suspension of the registration of a
firm or individual.
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SEC Resources
SEC resources can be found at the following
link:
• http://www.sec.gov/rules/final/33-8183.htm
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Question & Answer Session
Submit questions to the
EBPAQC mailbox at ebpaqc@aicpa.org
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Upcoming Events
•
ESOPs Live Forum, April 20, 1:00 – 3:00 pm ET
•
AICPA Annual Webcast on Employee Benefit Plans Strategic Briefing, to take place in
late April or Early May 2010
•
AICPA National Conference on Employee Benefit Plans, Las Vegas, NV, May 11 – 13,
2010
•
AICPA Employee Benefit Plan Audit Workshop for Defined Benefit and Defined
Contribution Plans, March 29 – 30, 2010, Chicago, Illinois; July 26 – 27, 2010, New York,
New York
•
AICPA Annual Employee Benefit Plans Accounting, Auditing and Regulatory Update
Conference, Washington, DC, December 13 – 14, 2010
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Resources
•
•
•
•
•
•
2010 AICPA Audit & Accounting Guide, Employee Benefit Plans – to be
available in May 2010
2010 Audit Risk Alert for Employee Benefit Plans – to be available in May 2010
AICPA TIS Section 2220, Long Term Investment
PCAOB Accounting Standard No. 7, Engagement Quality Review
PCAOB Staff Question and Answer, Accounting Standard No. 7, Engagement
Quality Review
EBPAQC Authoritative Accounting and Reporting Standards For Employee
Benefit Plans: FASB Accounting Standards Codification™
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Evaluation
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Employee Benefit Plan Audit Quality
Center
Thanks for Participating!
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