Checklist Audits of employee benefit plans have been notoriously problematic in recent years.

We wrote about the troublingly high number of Maryland deficiencies back in 2008, and in the years since state CPA societies have joined regulators and the AICPA in ramping up efforts to properly train auditors. And that's good.

Still, a little more knowledge can't hurt.

In that spirit, let's run down the most frequent violations of professional standards in employee benefit plan investigations, courtesy of the AICPA Professional Ethics Division's Technical Standards Subcommittee. This list is current as of Nov. 17, 2010. (Special thanks to the MACPA's Mary Beth Halpern for passing this list along.)

General audit deficiencies

  1. Inadequate documentation of audit procedures.
  2. The auditor did not obtain sufficient competent evidential matter to support the opinion on the financial statements.
  3. The firm over-relied on the SAS 70 report or relied on the report without having first obtained and read it.
  4. The auditor did not develop an audit program relevant to defined contribution plans / defined benefit plan.

Errors in DOL required schedules 

  1. Schedule of Assets Held for Investment Purposes did not properly identify persons know to be a party-in-interest to the plan in Column (a) as required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under ERISA.
  2. A Schedule of Assets Held for Investment Purposes was not attached to the financial statements.
  3. The Schedule of Assets Held for Investment Purposes at End of Year improperly excluded participant loans.

Errors in the auditor's report 

  1. The auditor did not properly dual date the reissued report.
  2. The auditor's report did not identify the supplemental schedules included with the basic financial statements and required by the Department of Labor.

Disclosure errors and omissions 

  1. Failure to disclose investments that represent 5 percent or more of total net assets.
  2. Failure to disclose the amount of forfeited non-vested accounts.
  3. Failure to disclose the method and significant assumptions used to determine the fair value of investments (or contracts) nor indicate on the presentation of investments how the fair value has been determined.
  4. Failure to disclose party in interest transactions.
  5. Failure to disclose the net change in fair value of each significant type of investment.
  6. Failure to disclose the  plan's federal tax status.
  7. The financial statement disclosures addressing information certified by the trustee incorrectly included non-investment information, which should have been subjected to audit procedures or improperly excluded information that was certified.
  8. The financial statements did not disclose a reconciliation between the assets reported in the audited financial statements and the assets reported in the Form 5500.
  9. The net appreciation / depreciation of investments was not stated separately from interest and dividends.
  10. Failure to disclose whether the employer absorbs significant costs of the plan.
  11. Failure to disclose the vesting provisions.
  12. Failure to disclosed items related to benefit-responsive investment contracts such as the average yield, the crediting interest rate, the amount of valuation reserves recorded to adjust contract amounts, the fair values, and a general description of the basis and frequency of determining crediting interest rate resets and any minimum crediting interest rate under the terms of the contract and any limitation on related liquidity guarantees.
  13. Health and welfare: The benefit obligations exceeded the net assets of the plan but the footnotes did not disclose the method of funding this deficit.

Learn more at the 2011 Employee Benefit Plan Audit Conference
Learn how to improve audit effectiveness and quality in employee benefit audits under the U.S. Department of Labor at the MACPA's second annual Employee Benefit Plan Audit Conference, scheduled for May 10 in Columbia. Get details and register here.

And don't miss these related learning opportunities:

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