What ‘warrants more attention’
MNCPA Employee Benefit Plan Task Force findings
Teresa McAlpine, CPA | April 2021 Footnote
Editor's note: Updated March 31, 2021
The MNCPA Employee Benefit Plan Task Force met in January to discuss potential improvements to employee benefit plan audited financial statements submitted by MNCPA members’ firms. The task force received 20 reports comprising 401(k), 403(b), defined benefit, and health and welfare plans for both single- and multi-employer plans.
This year’s volunteer task force was composed of 15 members, representing 13 accounting firms. The audited financial statements are allocated among the volunteers for individual review, including a first and secondary review. Recommended changes or suggestions for improvement are then shared and discussed at the task force’s review day. The results are then shared with the submitting firms.
Highlights of the task force’s discussion have not wildly changed from last year, but the following are the areas members believe warrant more attention.
- Reporting of investments and fair value disclosures continue to be one of the top challenges
- We noted instances where it appeared the type of investments held were not understood, which resulted in improper and incomplete footnote disclosures; for example, pooled separate accounts were described and disclosed as mutual funds.
- Missing and inconsistent treatment of investments reporting a net asset value as a practical expedient, including improperly reporting in the fair value hierarchy table and missing unfunded commitment disclosures.
- Inconsistent reporting between investments shown on the face of the financials and disclosures in the ASC 820 Fair Value Hierarchy table.
- Incomplete disclosures of fully benefit responsive contracts.
- Valuation methodology disclosures were not complete or incorrect.
Limited scope certifications and related footnotes
- Improper wording in the basis for the disclaimer of opinion paragraph in the auditor’s report; remember to use the American Institute of Certified Public Accountants (AICPA) employee benefit plan accounting and auditing guide’s sample reports.
- If there have been changes in the certification provider, be sure to include the proper periods for each certification.
- Missing language in the certification footnote.
- Be clear what investments are certified and which ones are not.
Supplemental schedule of assets held at end of year
- Improper or missing column headings.
- For participant loans, be sure to include interest rate ranges and maturity ranges, as well as a $0 in the cost column.
- For participant directed investments, cost can be omitted, and, if so, an asterisk should be added to the cost column with an explanation of this at the bottom of the schedule.
When presenting comparative statements of changes in net assets available for benefits, related footnote disclosures were not comparative or, alternatively, when presenting a single year, comparative disclosures were made when not appropriate.
For health and welfare plans, it was noted certain financials only included the trust activity, but should be prepared at the plan level. Also, footnotes were missing actuarial assumptions.
New auditing standard coming
As with most things in 2020, due to the ongoing global pandemic, the employee benefit plan changes that were planned for 2020 calendar plan year-end were deferred until 2021 calendar plan year-end. Therefore, you will likely see these changes when the 2021 audits are performed in 2022, unless earlier implementation is elected as permitted by the standard.
Statement on Auditing Standards (SAS) No. 136,
Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, is the new auditing standard and prescribes certain new performance requirements for ERISA audits, as well as changes to the form and content of the auditor’s report all specific to ERISA Section 103(a)(3)(C) audits. As a result of this, “limited scope audit” language will no longer be used, but rather going forward will be referred to as an “ERISA Section 103(a)(3)(C) audit.”
Resources
The AICPA 2020 edition of the Employee Benefit Plans Audit and Accounting Guide includes this new standard, so those electing early implementation should use this guide. For employee benefit plan audit engagements that are not early implementing these new auditing standards, the audit guidance in the 2019 edition continues to apply. In addition to the guides, additional resources are available on the AICPA Employee Benefit Plan Audit Quality Center website at www.tinyurl.com/aicpaEBPAQC.
Teresa McAlpine is a shareholder in the audit department of SDK CPAs and has more than 20 years of experience auditing employee benefit plans. You may reach Teresa at tmcalpine@sdkcpa.com or 612-332-9338.
About the task force
The MNCPA Employee Benefit Plan Task Force was created in 2009 to assist plan auditors with financial statement disclosures and reporting. The task force is composed of volunteers who are MNCPA members with experience performing, reviewing and supervising employee benefit plan audit engagements. MNCPA members’ firms are invited to submit financial statements from the pool of plans they have issued an audit opinion on. The submitting firms’ identities, along with the plan and plan sponsor’s identity, are masked to the task force.
