The opinions expressed in this presentation are those of the speaker. The International Foundationdisclaims responsibility for views expressed and statements made by the program speakers.

[P-ACCT2]Accounting and Auditing Update (Part 1)

[P-ACCT3] Accounting and Auditing Update FollowupWorkshop (Part 2)

Kathleen M. Jackson, CPAPartnerNovak Francella LLCBala Cynwyd, Pennsylvania

Marilee Pierotti Lau, CPAPartner (Retired)KPMG LLPKentfield, California

P-ACCT2-1

Session Overview

Two Part Session• New accounting and auditing pronouncements

affecting plans• Audit efficiencies in EBP audits• AICPA

– Changes in Peer Review– New Quality Initiatives– Audit Tools

• New multiemployer plan chapter• Audit Risk and What Could Go Wrong

P-ACCT2-2

Recap of 2016

• Industry Developments• Non-attest services and new AICPA

independence rules• New Accounting and Reporting Standards• DOL Audit Quality Study• Changes Service Providers• On the Horizon

P-ACCT2-3

Industry Developments

• Cybersecurity– DOL recently has increased their interest in

cybersecurity issues related to personal identifiable information (PII) and misappropriation of assets with regards to an employee benefit plan

– The Center for Audit Quality (CAQ) issued an Alert, Cybersecurity and the External Audit. This Alert provides guidance to better understand the auditors’ responsibility related to cybersecurity.

P-ACCT2-4

Determination Letters

• Revisions to determination letter program– Effective January 1, 2017– Elimination of 5-year remedial amendment cycles– Off-cycle requests for determination letters will no

longer be accepted – Individually designed retirement plans will be

eligible to obtain determination letters only for • Initial qualification • Termination• Certain other limited cases (as yet to be defined)

P-ACCT2-5

Form 5500

• IRS compliance questions are found in Schedules H, I and R

• Optional for the 2015 plan year • Congress repealed a change in the law

that would have provided an additional month to the Form 5500 maximum automatic extension period, effective for the 2016 Form 5500 filing season

P-ACCT2-6

Non-attest Services and the New AICPA Independence Rules

• Revised Ethics Rules—Effective for periods beginning on or after December 15, 2014

• Services no longer considered part of the audit– Financial statement preparation– Cash-to-accrual conversions– Reconciliations– Other

• Permitted to assist management with financial statement preparation, but must make certain the requirements are met and other non-attest services do not have a cumulative effect

P-ACCT2-7

Non-attest Services and the New AICPA Independence Rules

• Auditor determines that – Management has assumed all management responsibilities

– Management properly oversees the service

– Management evaluates the adequacy and results of the service

– Management accepts responsibility for the results of the services

• Documentation (in writing)– Objectives of the engagement

– Services performed

– Management’s acceptance of its responsibilities and auditor’s responsibilities

– Any limitations of the engagement

New EBPAQC Tool for Documenting Independence for Non Attest Services

P-ACCT2-8

Elimination of the Disclosure of Open Tax Years When No Unrecognized Tax Benefits Exist

• CPEA investigative reporting published March 18, 2015• TIS 5250.15, Application of Certain FASB FIN No. 48

Disclosure Requirements to Nonpublic Entities That Do Not Have Uncertain Tax Positions, Deleted on March 24, 2015

• CPEA work resulted in deletion of TPA• TPA 5250.15 was in conflict with paragraphs BC 13–14

of ASU 2009-06 • Conflicting guidance caused considerable confusion

and controversy

P-ACCT2-9

Elimination of the Disclosure of Open Tax Years When No Unrecognized Tax Benefits Exist

• Major tax exempt entity (NFP, EBP, S-Corp, Partnership) Impact:– Tax exempt status—Uncertain tax position– Conflicting guidance about disclosing open tax years– Additional costs

• Disclosure of open tax years is necessary only if an entity has unrecognized tax benefits

• Audit Guide updated and outstanding FFCs will be removed:– Peer Review Checklists being updated– Peer review committee did make clear that peer review checklist

question should be marked “N/A” if no uncertain tax positions

P-ACCT2-10

SSARS No. 21

Effective for engagements on financial statements for periods ending on or after December 15, 2015.

P-ACCT2-11

SSARS 21—Format

• SSARS No. 21 is formatted into four separate sections:– Section 60, General Principles for Engagements

Performed in Accordance With Statements on Standards for Accounting and Review Services

– Section 70, Preparation of Financial Statements– Section 80, Compilation Engagements– Section 90, Review of Financial Statements

• These sections are codified with the prefix “AR-C” to denote them from the pre-clarity standards.

P-ACCT2-12

New ASU’s

ASU 2015-07 ASU 2015-10 ASU 2015-12

P-ACCT2-13

New Accounting Standards

• ASU 2015-07 Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent)

• ASU 2015-10 Technical Corrections and Improvements

• ASU 2015-12 Plan Accounting: Defined Benefit Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965)

P-ACCT2-14

ASU 2015-07

• Issued May 2015

• Eliminates the requirement to categorize investments for which fair values are measured using the net asset value per share (“NAV”) as a practical expedient

• Sufficient information must be provided to permit reconciliation of the fair value of the assets categorized within the FV hierarchy table to amounts presented in the statement of net assets

• Continue to disclose investment strategy*, future investment commitments and redemption requirements

* ASU 2015-12 removes the disclosure of investment strategy for funds that file Form 5500 as a Direct Filing Entity (DFE).

P-ACCT2-15

ASU 2015-07 Effective Dates

Fiscal years beginning after December 15, 2015 (public

entities) and 2016 (other entities)

Early adoption permitted

Applied retrospectively to

all periods presented

P-ACCT2-16

ASU 2015-10, Technical Correctionsand Improvements New Practice Issue

Changes the FASB definition of “readily determinable fair value” (paragraph 30 of ASU 2015-10): [changes in Red]

An equity security has a readily determinable fair value if it meets any of the following conditions:a. The fair value of an equity security is readily determinable if sales prices or bid-and-asked

quotations are currently available on a securities exchange registered with the U.S. Securities and Exchange Commission (SEC) or in the over-the-counter market, provided that those prices or quotations for the over-the-counter market are publicly reported by the National Association of Securities Dealers Automated Quotations systems or by OTC Markets Group Inc. Restricted stock meets that definition if the restriction terminates within one year.

b. The fair value of an equity security traded only in a foreign market is readily determinable if that foreign market is of a breadth and scope comparable to one of the U.S. markets referred to above.

c. The fair value of an equity security that is an investment in a mutual fund or in a structure similar to a mutual fund (that is, a limited partnership or a venture capital entity)is readily determinable if the fair value per share (unit) is determined and published and is the basis for current transactions.

P-ACCT2-17

ASU 2015-07 FV Hierarchy with NAV Footnote Example

P-ACCT2-18

Principal Insurance Company

Principal has been very proactive with the changes to ASC 820. Recently, FASB issued ASU 2015-10, which is "technical corrections." The pronouncement appears to change the definition of "Readily Determinable Fair Value." Has Principal made any changes to your "leveling" table as a result of this?

No. The change was in paragraph C. (c) The fair value of an equity security that is an investment in a mutual fund or in a structure similar to a mutual fund (that is, a limited partnership or a venture capital entity) is readily determinable if the fair value per share (unit) is determined and published and is the basis for current transactions.

The issuance of ASU 2015-10 and the subsequent issuance of 2015-12 has caused much confusion around this issue. Particularly this section of 2015-10 as it does not define what they mean by “publish”. In ASU 2015-12 which followed, they stated that most stable value CITs would be eligible for NAV as a practical expedient and technical corrections are not designed to change practice.

We do not feel that this ASU has an impact on our pooled separate accounts or collective investments trusts. None of our PSA or CITs has an NAV that is published on an exchange or over the counter. They are not publicly traded on foreign markets. These investments are not considered mutual funds and thus they are scoped out from that category as well. Therefore we feel these investments qualify for NAV as practical expedient. Not all plan sponsors will agree with our conclusion.

Unless or until FASB comes out with further clarifications regarding this we plan to continue to suggest NAV as practical expedient on our tool. As stated on the tool – it is the plan sponsors role to ensure plan assets and liabilities are valued appropriately at fair value and related financial statement disclosures are in place as applicable. Our tool is just that – a tool to be used as a basis for establishing their process. It is up to the plan sponsor to come to a final conclusion based on their interpretations of information available to them. Their interpretation may or may not agree with ours.

P-ACCT2-19

Principal Insurance Company

• Stable Value Fund is not an insurance contract. It is a collective investment trust. The Form 5500 has always required assets to be reported at fair value except for the benefit responsive insurance contracts. ASU 2015-12 explains that stable value CITs are not to be treated as fully benefit-responsive investment contracts but they may be able to use the NAV practical expedient as fair value for financial statement purposes. However, the reporting requirements for Form 5500 have not changed and still requires true fair value to be reported for the Principal Stable Value Fund.

P-ACCT2-20

Cigna 11K

Recent Accounting PronouncementsIn May 2015, the Financial Accounting Standards Board (FASB) issued ASU 2015-07, Fair Value Measurement (Topic 820) Disclosures for Investments in Certain Entities that Calculate Net Asset Value (NAV) per Share (or Its Equivalent), which removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the NAV per share practical expedient. The ASU is effective for public entities for fiscal years beginning after December 15, 2015, with early adoption permitted. Management has elected to early adopt ASU 2015-07 in these financial statements and has determined based on the expanded definition of Readily Determinable Fair Value, (RDFV) per ASU 2015-10, Technical Corrections and Improvements, that NAV of the pooled separate accounts does not qualify as a practical expedient and such investments should continue to be included in the fair value hierarchy. Adoption and application of the Update therefore has no effect on the Plan's financial statements or disclosures.

P-ACCT2-21

Cigna 11K

In July 2015, the FASB issued ASU 2015-12, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962),Health and Welfare Benefit Plans (Topic 965): (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III)Measurement Date Practical Expedient. Part I eliminates the requirements to measure the fair value of fully benefit-responsive investment contracts and provide certain disclosures. Contract value is the only required measure for fully benefit-responsive investment contracts. Part II eliminates the requirements to disclose individual investments that represent 5 percent or more of net assets available for benefits and the net appreciation or depreciation in fair value of investments by general type. Part II also simplifies the level of disaggregation of investments that are measured using fair value. Plans will continue to disaggregate investments that are measured using fair value by general type; however, plans are no longer required to also disaggregate investments by nature, characteristics and risks. Further, the disclosure of information about fair value measurements shall be provided by general type of plan asset. Part III is not applicable to the Plan. The ASU is effective for fiscal years beginning after December 15, 2015, with early adoption permitted. Parts I and II are to be applied retrospectively. Management has elected to adopt Parts I and II early in these financial statements, via retrospective application. As a result of adopting this Update, fair value disclosures as of December 31, 2015 and 2014 exclude the Fixed Income Fund as required by the guidance.

P-ACCT2-22

ASU 2015-12

• Issued July 2015• Issued to a three-part ASU to simplify

financial reporting for benefit plans– Part I: Fully Benefit-Responsive Investment

Contracts– Part II: Plan Investment Disclosures – Part III: Measurement Date Practical Expedient

• Developed by FASB Emerging Issues Task Force (EITF)

P-ACCT2-23

ASU 2015-12 Effective Dates

Fiscal years beginning after December 15, 2015 (early

adoption permitted)

Can adopt any of the ASU's three parts

without early adopting the other parts

When a part is adopted, it must be

adopted in its entirety

Parts I and II applied

retrospectivelyPart III applied prospectively

P-ACCT2-24

Part I: Fully Benefit-Responsive Investment Contracts

• Affects defined contribution pension and health and welfare plans

• Definition of a fully benefit-responsive investment contract (FBRIC) in master glossary did not change

• Clarifies that contract value is the relevant measure for FBRICs because that is the amount participants would receive in a transaction

• Eliminates requirements to measure fair value and present related fair value measurement disclosures– Responds to concerns about the cost and effort required to

measure the fair value of FBRICs when fair value is not the relevant measure

P-ACCT2-25

Part I: Fully Benefit-Responsive Investment Contracts (continued)

• Instead, plans will present FBRICs at contract value in the statement of net assets available for benefits, either as– Investments at contract value– Fully benefit-responsive investment contracts at

contract value

• Investment contracts that do not meet the definition of a FBRIC continue to be presented at fair value

• Apply new guidance retrospectively

P-ACCT2-26

Definition: Fully Benefit-Responsive Investment Contracts

An investment contract is fully benefit-responsive, if all of the criteria are met (see FASB ASC glossary for full list of criteria), analyzed on an individual basis. Criteria (not all inclusive): • The investment contract is direct- between the plan and the issuer

and . . . • All permitted participant-initiated transactions with the plan are to

occur at contract value with no conditions, limits, or restrictions (permitted participant-initiated transactions are those transactions allowed by the plan, such as withdrawals for benefits, loans, or transfers to other funds within the plan)

• An event that limits the ability of the plan to transact at contract value with the issuer must be probable of not occurring

• Participants must be allowed reasonable access to their funds

P-ACCT2-27

Illustrative Statements of Net Assets Available for Benefits: FBRICs

Prior to Adoption of ASU 2015-12 (Part I)Statements of Net Assets Available for Benefits

December 31, 20X1 and 20X0 (in thousands)

20X1 20X0Assets:

Investments at fair value $ 740,450  612,020 

Notes receivable from participants 9,810  7,230 

Net assets reflecting investments at fair value 750,260  619,250 

Adjustment from fair value to contract value for fully benefit‐responsive investment contracts (2,861) (5,210)

Net assets available for benefits $ 747,399  614,040 

P-ACCT2-28

Statements of Net Assets Available for BenefitsDecember 31, 20X1 and 20X0 (in thousands)

20X1 20X0Assets:

Investments at fair value $ 721,098740,450 589,208612,020

Fully benefit‐responsive investment contracts at contract value 16,491 17,602

Notes receivable from participants 9,810  7,230 

Net assets reflecting investments at fair value 750,260  619,250 

Adjustment from fair value to contract value for fully benefit‐responsive investment contracts (2,861) (5,210)

Net assets available for benefits $ 747,399  614,040 

Illustrative Statements of Net Assets Available for Benefits: Traditional Investment Contract

Marked-up for Adoption of ASU 2015-12 (Part I)

P-ACCT2-29

Illustrative Statements of Net Assets Available for Benefits: FBRICs

Final for Adoption of ASU 2015-12 (Part I)

Statements of Net Assets Available for Benefits

December 31, 20X1 and 20X0 (in thousands)

20X1 20X0Assets:

Investment at fair value (See Note C) $ 721,098  589,208Fully benefit‐responsive investment contracts at contract value (See Note D) 16,491 17,602Notes receivable from participants 9,810  7,230 

Net assets available for benefits $ 747,399  614,040 

P-ACCT2-30

Illustrative Schedule of Assets (Held at End of Year): Traditional Investment Contract

Schedule H, Line 4i – Schedule of Assets (Held at End of Year)December 31, 20X1 (in thousands)

(a)(b)

Identify of issue/Description(e)

Current Value

Investments –

ABC Mutual Fund – Growth FundABC Mutual Fund – International FundABC Mutual Fund – Blended FundABC Mutual Fund – Target Date 2015 FundABC Mutual Fund – Target Date 2020 FundABC Mutual Fund – Target Date 2030 FundABC Mutual Fund – Target Date 2040 FundABC Mutual Fund – Target Date 20150 Fund

$ 125,24987,546123,65950,98075,68995,08983,10179,785721,098

Fully benefit‐responsive investment contracts –

XYZ Insurance Company investment contract 16,491

Notes receivable from participants, interest rates between 4.5% and 6% with maturities through December 31, 20XX 9,810 

Total Assets Held

$

747,399

P-ACCT2-31

Synthetic Investment Contracts

• Plan owns the underlying securities (e.g., fixed income investments, units in CCT, wrapper contract)

• Present as single amount at contract value with other FBRICs (do not break out underlying securities)

• No changes to Form 5500 and supplemental schedule requirements– Present each underlying security at its fair value – Wrapper will be presented at fair value (often the amount

needed to adjust the fair value of the underlying securities from fair value to contract value)

P-ACCT2-32

Illustrative Statements of Net Assets Available for Benefits: FBRICs

Final for Adoption of ASU 2015-12 (Part I)

Statements of Net Assets Available for Benefits

December 31, 20X1 and 20X0 (in thousands)

20X1 20X0Assets:

Investment at fair value $ 721,098  589,208Fully benefit‐responsive investment contracts at contract value 16,491 17,602Notes receivable from participants 9,810  7,230 

Net assets available for benefits $ 747,399  614,040 

P-ACCT2-33

Illustrative Schedule of Assets (Held at End of Year): Synthetic Investment Contracts

Schedule H, Line 4i – Schedule of Assets (Held at End of Year)December 31, 20X1 (in thousands)

(a)(b)

Identify of issue/Description(e)

Current Value

Investments –

ABC Mutual Fund – Growth FundABC Mutual Fund – International FundABC Mutual Fund – Blended FundABC Mutual Fund – Target Date 2015 FundABC Mutual Fund – Target Date 2020 FundABC Mutual Fund – Target Date 2030 FundABC Mutual Fund – Target Date 2040 FundABC Mutual Fund – Target Date 20150 Fund

$ 125,24987,546123,65950,98075,68995,08983,10179,785721,098

Fully benefit‐responsive investment contracts –

Bank of United States (wrap contract)Bank of the South (wrap contract)Bank of the North (wrap contractDEF A or Better Core Fixed Income FundDEF A or Better Government/Credit FundDEF Intermediate Bond Fund

(205)(198)(107)

10,4533,3283,22016,491

Notes receivable from participants, interest rates between 4.5% and 6% with maturities through December 31, 20XX 9,810 

Total Assets Held $ 747,399 

P-ACCT2-34

New ASUs: Stable Value Common or Collective Trusts (CCTs) or Similar Investment Funds

• Indirect investments in FBRICs through investment companies (e.g., stable value CCTs) are not in the scope of the FBRIC guidance– Plans should report these investments at fair value– These funds calculate NAV per share (or its

equivalent) in a manner consistent with the measurement principles of ASC 946

– In the past, these funds were commonly measured fair value using the net asset value (NAV) practical expedient

P-ACCT2-35

New ASUs: Stable Value Common or Collective Trusts (CCTs) or Similar Investment Funds

• Indirect investments in FBRICs through investment companies not in the scope of the FBRIC guidance (continued)– As required by ASC 946, the NAV calculated by the fund is based

on “net assets” which includes FBRICs at contract value • This NAV represents the plan’s fair value since this is the NAV

at which the plan transacts with the fund– The amount previously presented as contract value is now

presented as fair value• This does not change total net assets available for benefits• The investments are now accounted for consistent with other

CCTs or similar investment funds and are presented with investments at fair value

P-ACCT2-36

“Stable Value” Investments

• Traditional Guaranteed Investment Contracts (GICs)– Contract with bank or insurance company– Guarantees a specified rate of return

• Synthetic GICs – Plan owns underlying assets– Insurance company or bank issues a wrapper

contract to simulate performance of GIC

• Stable Value Collective Trust Funds

FBRIC

Technicallynot aFBRIC

P-ACCT2-37

Illustrative Statements of Net Assets Available for Benefits: CCT—Stable Value Fund

Prior to Adoption of ASU 2015-12 (Part I)Statements of Net Assets Available for BenefitsDecember 31, 20X1 and 20X0 (in thousands)

20X1 20X0

Assets:

Investments at fair value $ 740,450  612,020 

Notes receivable from participants 9,810  7,230 

Net assets reflecting investments at fair value 750,260  619,250 

Adjustment from fair value to contract value for fully benefit‐

responsive investment contracts (2,861) (5,210)

Net assets available for benefits $ 747,399  614,040 

P-ACCT2-38

Illustrative Statements of Net Assets Available for Benefits: CCT—Stable Value Fund

Mark-up for Adoption of ASU 2015-12 (Part I)Statements of Net Assets Available for BenefitsDecember 31, 20X1 and 20X0 (in thousands)

20X1 20X0

Assets:

Investments at fair value $ 737,589740,450 606,810612,020

Notes receivable from participants 9,810  7,230 

Net assets reflecting investments at fair value 750,260  619,250 

Adjustment from fair value to contract value for fully benefit‐

responsive investment contracts (2,861) (5,210)

Net assets available for benefits $ 747,399  614,040 

P-ACCT2-39

Illustrative Statements of Net Assets Available for Benefits: Stable Value Fund

Final for Adoption of ASU 2015-12 (Part I)

Statements of Net Assets Available for Benefits

December 31, 20X1 and 20X0 (in thousands)

20X1 20X0

Assets:

Investments at fair value $ 737,589  606,810

Notes receivable from participants 9,810  7,230 

Net assets available for benefits $ 747,399  614,040 

P-ACCT2-40

FBRIC Hierarchy Table Consideration

• Investments presented at contract value (e.g., FBRICs) are not included in the hierarchy table if value at NAV using the practical expedient

• Underlying securities of a synthetic investment contract are not included in the hierarchy table

P-ACCT2-41

FBRIC Disclosures

• Required disclosures– New disclosure: Total contract value of each type of FBRIC (e.g.,

synthetic investment contracts, traditional investment contracts)

– Previously required disclosure: Description of the nature of each type of FBRIC (including how it operates)

– Previously required disclosure: Description of events that limit the ability of the plan to transact at contract value, including a statement that these events are not probable of occurring

– Previously required disclosure: Description of events and circumstances that would allow the issuer to terminate the contracts and settle at an amount different from contract value

P-ACCT2-42

FBRIC Disclosures (continued)

• Eliminated disclosures– Hierarchy level– Fair value measurement techniques and

inputs– Level 3 reconciliation– Average yields

P-ACCT2-43

FBRIC Held by Master Trust

FBRICs held in a master trust are subject to the same presentation and disclosure requirements as FBRICs held by a plan.

P-ACCT2-44

Reconciliation Between the Form 5500 and the Financial Statements

ERISA requires that the financial statements include an explanation of the differences, if any, between the information contained in the separate financial statements and the assets, liabilities, income, expenses and changes in the net assets as required to be reported in the prescribed financial statements of Form 5500

P-ACCT2-45

Part II: Plan Investment Disclosures

• Affects all types of plans• Simplifies the level of disaggregation for investments

measured using fair value– Disaggregate by general type of investment (e.g., common

stocks, corporate bonds, mutual funds)– Plans are exempt from the requirements of ASC 820-10-50-2B to

disaggregate assets by class (e.g., nature, characteristics, risks)– Disclosure of fair value information required by ASC 820 shall be

provided by general type rather than class (e.g., valuation techniques, inputs, level 3 reconciliation)

– Provides consistency with the level of disaggregation provided by most trustees, custodians and insurance companies and with the information required in Form 5500

P-ACCT2-46

Part II: Plan Investment Disclosures (continued)

• Disclosure simplifications– Plans are no longer required to disclose individual investments

with a value equal to or greater than 5% of net assets available for benefits

– Eliminates the requirement to disclose the net appreciation or depreciation in fair value of investments by general type

• Instead, plans only need to disclose this amount in the aggregate

– No longer required: the significant investment strategies for an investment in a fund that files an annual report on Form 5500 as a direct filing entity when the plan measures that investment using the NAV practical expedient

– Applies to investments held in a master trust

• ASU is to be applied retrospectively

P-ACCT2-47

Part III, Measurement Date Practical Expedient

• Simplifies accounting for a plan with a fiscal year end (FYE) that doesn’t coincide with a calendar month end

• Added to the project as a result of a similar practical expedient that the FASB recently issued for employers with FYEs that don’t end at the end of a calendar month (ASU 2015-04)

• Allows a plan to measure its investments and investment-related accounts using the month end closest to its FYE (i.e., an alternative measurement date)– Disclose as an accounting policy– Disclose financial effects of contributions, distributions and/or

significant events that occur between the alternative measurement date and the plan’s fiscal year end

– Apply consistently year to year• ASU to be applied prospectively

P-ACCT2-48

Things To Think About . . .

• ASC 250—Accounting Changes and Error Corrections: Disclosures

• AU-C 708 Consistency of Financial Statements—Consider whether an emphasis paragraph (EOM) in the auditor's report is needed

P-ACCT2-49

Things To Think About (continued)

• Change in Auditor in Year of Adoption

– Who will take responsibility for retrospectively adjusting the financial statement

• TCWG communications—– AU-C 706.09—If you expect to include an EOM

paragraph, communicate with TCWG this expectation and proposed wording

– AU-C 260.12—Communicate with TCWG your views about qualitative aspects of significant accounting practices (including accounting policies, accounting estimates, and disclosures)

P-ACCT2-50

Auditing Considerations

• Although self-directed brokerage accounts are presented as a general type of investment, consider the detail of the underlying securities when developing audit strategy (full scope audit)

• Although synthetic investment contracts are presented as a total amount at contract value for GAAP purposes, the DOL requires each investment to be listed in the supplemental schedule of investments held– Plan owns the underlying investments– Each underlying investment is included in the supplemental schedule at

fair value (wrapper value adjusts total back to contract value)– Consider audit strategy/certification for fair value of underlying

investments

P-ACCT2-51

Auditing Considerations (continued)

• CCTs or similar investment funds that invest in FBRICs– Fund issuer no longer needs to provide a calculation of the

fair value and contract value– For a full scope audit, if the plan is using the NAV practical

expedient to measure fair value perform procedures to test the NAV and units used by management to determine the fair value of the CCT as of the plan’s measurement date (NAV x units held = Fair value)

• Typically this will be the same value presented in the trust statement

– For a limited scope audit, the certification provided by the trustee will typically include the value presented in the trust statement which should be fair value

P-ACCT2-52

Plan Administrator Responsibilities

• Accounting for the adoption of ASU 2015-07 and 12, including the applicable transition provisions, and the effect it has on the financial statements

• Preparing documentation supporting the accounting for the adoption of ASU. Documentation should include the following:– Description of ASU including effective date and the effect it will

have on current and, when applicable, prior financial statements – Method used to adopt ASU (e.g., retrospective, prospective) and

whether this method is consistent with the requirements of the standard

– Assessment of financial statement disclosures for adequacy

P-ACCT2-53

Plan Administrator Responsibilities (continued)

• Important that the plan administrator, even in a limited scope audit, determines:– Investments have been valued as of the plan’s year-

end– The method for determining the fair value/contract

value is in conformity with GAAP and appropriate for reporting to the DOL on the Form 5500

P-ACCT2-54

ASC 250—Accounting Changes and Error Corrections: Disclosures

ASC 250-10-50-1 states: An entity shall disclose all of the following in the fiscal period in which a change in accounting principle is made: a. The nature of and reason for the change in accounting

principle, including an explanation of why the newly adopted accounting principle is preferable, and

b. The method of applying the change.

P-ACCT2-55

ASC 250—Accounting Changes and Error Corrections: Example Disclosure

In July 2015, the FASB issued ASU 2015-12, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient. Part I eliminates the requirements to measure the fair value of fully benefit-responsive investment contracts and provide certain disclosures. Contract value is the only required measure for fully benefit-responsive investment contracts. Part II eliminates the requirements to disclose individual investments that represent 5 percent or more of net assets available for benefits and the net appreciation or depreciation in fair value of investments by general type. Part II also simplifies the level of disaggregation of investments that are measured using fair value. Plans will continue to disaggregate investments that are measured using fair value by general type; however, plans are no longer required to also disaggregate investments by nature, characteristics and risks. Further, the disclosure of information about fair value measurements shall be provided by general type of plan asset. Part III is not applicable to the Plan. The ASU is effective for fiscal years beginning after December 15, 2015, with early adoption permitted. Parts I and II are to be applied retrospectively. Management has elected to adopt Parts I and II early.

P-ACCT2-56

Note D. Fully Benefit-Responsive Investment Contracts

P-ACCT2-57

Note D. Fully Benefit-Responsive Investment Contracts (continued)

P-ACCT2-58

Note D. Fully Benefit-Responsive Investment Contracts (continued)

P-ACCT2-59

AU-C 708 Consistency of Financial Statements

Change in Accounting PrincipleAU-C 708.07—The auditor should evaluate a change in accounting principle to determine whether

a. The newly adopted accounting principle is in accordance with the applicable financial reporting framework,

b. The method of accounting for the effect of the change is in accordance with the applicable financial reporting framework,

c. The disclosures related to the accounting change are appropriate and adequate, and

d. The entity has justified that the alternative accounting principle is preferable.

P-ACCT2-60

AU-C 708 Consistency of Financial Statements (continued)

Change in Accounting PrincipleAU-C 708.08—If the auditor concludes that the criteria in paragraph .07 have been met, and the change in accounting principle has a material effect on the financial statements, the auditor should include an emphasis-of-matter paragraph in the auditor’s report that describes the change in accounting principle and provides a reference to the entity’s disclosure. If the criteria in paragraph .07 are not met, the auditor should evaluate whether the accounting change results in a material misstatement and whether the auditor should modify the opinion accordingly.Emphasis of Matter:

As discussed in Note X to the financial statements, in [insert year(s) of financial statements that reflect the accounting method change], the entity adopted new accounting guidance [insert description of new accounting guidance]. Our opinion is not modified with respect to this matter.

P-ACCT2-61

DOL Audit Quality Study

P-ACCT2-62

DOL Audit Quality Study Results

• Results released in Spring 2015• 39% Overall Error Rate—Jumps to 69%

for smallest EBP practices

P-ACCT2-63

DOL Audit Quality Study Results—Takeaways

• Audit documentation– Record of procedures performed, evidence

obtained, and conclusions reached– Satisfy the “experienced auditor” test– No credit for what is not documented

• EBP and audit training• Professional skepticism

P-ACCT2-64

Changes in Service Providers

P-ACCT2-65

Changes in Plan Service Providers

• Changes in providers (custodians, trustees, recordkeepers, and auditors) are common but can increase risk if not managed properly.

• Plan sponsors have a fiduciary responsibility to ensure that the change is monitored and performed properly.

P-ACCT2-66

Changes in Plan Service ProvidersOverall Risks—What Can Go Wrong

• Amounts transferred are not accurate and/or not allocated to the proper investment accounts

• Data transferred (participant/payroll) is not accurate or complete

• Reconciliations are not completed• Change in audit scope• Changes in plan design

P-ACCT2-67

Changes in Plan Service ProvidersWhat Can Go Wrong for a 401(k) Plan

• Potential delays in remitting employee deferrals which could be deemed a PROHIBITED TRANSACTION

• BEWARE –There is sometimes a delay between when the plan assets are liquidated and the actual cash is transferred out.– Timing issue that could result in a deposit in

transit– Might not be included in either certified statement

P-ACCT2-68

On the Horizon

P-ACCT2-69

On the Horizon

• AICPA EBP Expert Panel advocacy efforts with the FASB (Phase II)

• Master Trust Exposure Draft• EBP Audit Report• ASU 2014-15, Going concern

P-ACCT2-70

Increasing Transparency of EBP Audit Report

• DOL requested AICPA Auditing Standards Board (ASB) to enhance audit report transparency

• DOL believes addressee should include plan participants and their beneficiaries

• Use of emphasis-of-matter and other-matter paragraphs to communicate key audit matters “KAM” (ISA 701) Reporting on Form and Content of supplemental schedules

• Emphasize management’s responsibilities• Provide information on compliance and internal control

material weaknesses and significant deficiencies (similar to GAO “Yellow Book”) in audit report

• Identify audit engagement partner and peer reviewer firm

P-ACCT2-71

New EBP Audit Report

• EBP Experts Panel has taken matter to the Auditing Standards Board

• Example auditor opinions for both limited scope and full scope audits

• Possibly have own section not in AU 700• More transparency

– Disclosure deficiencies in complying with plan provisions and other internal control weaknesses

– Explaining what was done in a limited scope audit—Testing etc.

P-ACCT2-72

ASU 2014-15, Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern

• Effective for periods ending on or after December 15, 2016 (early application is permitted)

– Entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued

– Disclosures when substantial doubt is raised but is alleviated by management’s plans (substantial doubt does not exist)

– Disclosures when substantial doubt is raised and is not alleviated (substantial doubt exists)

• AU-C Section 570, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern

P-ACCT2-73

Audit Efficiencies in EBP Plans

P-ACCT2-74

2016 Audit Season

• What went well?• What didn’t go well?

P-ACCT2-75

Audit Efficiencies in EBP Audits

• General• Planning• Field work• Wrap up• Specific high risk audit areas

P-ACCT2-76

Efficiencies in EBP Audits—General

• Assess overall EBP practice– Analyze last years results– Assess workload and capacity issues– Adequately train and prepare audit teams

• Discuss efficiencies in brainstorm session• Update forms and checklists• Create standard documentation templates

P-ACCT2-77

Efficiencies in EBP Audits—Planning

• Confirm details with client early• Set up planning meeting with client • Prepare and agree to a timeline• Line up communication channels with service providers• Ask for client information early• Send audit confirmations early• Consider common EBP audit deficiencies identified by

– DOL– Peer review– Firm’s internal inspection

P-ACCT2-78

Efficiencies in EBP Audits—Field Work

• Gather information for Form 5500 as you audit• Schedule regular meetings with client personnel• Review workpapers as they are completed• Alert client about compliance issues, control

deficiencies and operational issues as they are discovered

• Complete the audit and draft financials in the field

P-ACCT2-79

Efficiencies in EBP Audits—Wrap up

• Schedule concurring reviews early• Have clients review deliverables as they are

finished• Clear review points on a timely basis• Make sure log of issues are cleared• Don't forget lockdown/wrap up• Prepare timely list of issues for next year.• Plan for next years audit at end of audit

P-ACCT2-80

Efficiencies in Auditing Investments

• Don’t forget investment income• Valuation of alternative investments• Analytical tests of income• Are they following their investment policy?• Testing investment expenses• Determining ownership• Make sure to get K-1 and audited F/S

P-ACCT2-81

Efficiencies in Auditing Benefit Payments

• Stratify• Concentrate on duplicate payments• Use specialists• Use data mining• Look for common errors

– Upcoding and unbundling– Payments to ineligible participants/beneficiaries– Fictitious services

• Look for improper loans/hardship withdrawals

P-ACCT2-82

Efficiencies in Auditing Contributions

• Vary the payroll audit cycle• Payroll audits—Get in and get out• Look for patterns in contributions• Payroll audits—Concentrate on deficiencies• Are they following their collection policy?• Payroll audits—Annual review• Fulfill the completeness objective

P-ACCT2-83

Efficiencies in Auditing Participant Data

• Work with the actuary• Review death searches and dependency

audits

P-ACCT2-84

Efficiencies in Auditing Plan Expenses

• Scan cash disbursements• Question professional fees above

contracted amounts• Audit trustees and plan employees

expenses

P-ACCT2-85

What Should Trustees Do

• Fraud brainstorming• Understand their internal control systems• Have more frequent and longer

communication with auditors• Assign too much authority to key person• Periodically review plan operations• Annually review and update plan policies

P-ACCT2-86

Changes in Peer Review and What it

Means to You

P-ACCT2-87

Changes in Peer Review

• Reviewer qualifications changes and EBP Focus

• Enhanced oversight process and EBP findings

• EBP Peer Review checklist• AICPA’s initiatives and resources to

improve audit quality

P-ACCT2-88

Reviewer Qualification Changes—Must-Select

Engagements• Reviewer, within own firm, must be currently

• Supervising or performing engagements• Performing EQCR reviews • Carrying out reviews of engagements as

part of the firm’s monitoring process

Experience

• Reviewers’ firms must be members of relevant Audit Quality Center, when applicable

AQC Membership

• For peer reviews commencing on or after 12/31/2015

Effective Date

P-ACCT2-89

Reviewer Qualification Changes—Must-Select

Engagements

• Complete additional training for certain must-select engagementsTraining

• For peer reviews with EBP or Governmental engagements commencing on or after 5/1/2016

Effective Date

P-ACCT2-90

Enhanced Oversight

P-ACCT2-91

Enhanced Oversight Process

RAB issues reviewer feedback as necessary.

Report submitted to AE for consideration during the report acceptance process.

Expert & reviewer discuss issues noted, then expert issues report.

Expert reviews workpapers, completes checklist & compares to reviewer's work.

AICPA notifies firm, peer reviewer & AE of enhanced oversight selection.

Reviewer performs peer review & submits documents to AE.

P-ACCT2-92

Breakdown of Engagements Selected

4832

9

1

EBP Single Audit Government Auditing Standards SOC 1

P-ACCT2-93

Oversight Results by Type22

17

1

48

41

1

EBP GAS/SINGLE AUDIT SOC 1

Non-Conforming Engagements Total Engagements Reviewed

P-ACCT2-94

Oversight Results by Type

22

17

1

48

41

1

EBP GAS/SINGLE AUDIT SOC 1

Non‐Conforming Engagements77

Only 7 non-conforming engagements were identified by the peer reviewer.

P-ACCT2-95

Enhanced Oversight Findings Employee Benefit Plans

• Level one text– Level two text

• Level three text

Service Organization Control (SOC) Reports

Overreliance – omitted testing

Investment elections

Allocation of investment

incomeAllocation of contributions

No documentatio

n of evaluation

P-ACCT2-96

Enhanced Oversight Findings Employee Benefit Plans

• Investments– Failure to test fair value measurements– No direct confirmation of existence in a full scope audit– Failure to test valuation in a full scope audit

• Benefit payments– No audit documentation or no audit work performed– Failure to sufficiently perform procedures related to benefit and

claims payment testing including evaluating participant’s eligibility, examining approvals and recalculation of benefit or claims amounts

• Participant data– Failure to sufficiently perform participant testing related to

demographic data and payroll

P-ACCT2-97

Findings (continued)

• Other– Failure to report significant plan information, such as

related party and party in interest transactions, and prohibited transactions between a plan and a party in interest

– Failure to obtain an understanding of the actuary’s or appraiser’s objectives, scope of work, methods and assumptions, and consistency of application

– Failure to properly document engagement planning, risk assessment and the internal control environment

P-ACCT2-98

Enhanced Oversight—What’s Next?

• Sample size expanded from 90 to 190– 166 Random– 24 Targeted

• Two new components– Determining the systemic reasons firms

performed (or failed to perform) engagements in conformity with professional standards in all material respects

– Determining targets for onsite oversight to be performed by the experts

P-ACCT2-99

EBP Peer Review Checklist

P-ACCT2-100

Peer Review EBP Checklist

• Revised Checklist 20,700• Added questions on risk assessment• Identified and or revised certain bolded

questions

P-ACCT2-101

EBP Engagement Profile Changes (completed by practitioner)

• List EBP specific training for all engagement personnel for previous 3 years

• Risk assessment contains additional section for DOL limited scope audits– If a limited scope audit, what is the name of the

entity certifying the investments?– Was there a change any of the service providers

during the year? – Were all investments certified? If not, describe

assets not certified and the procedures performed.

P-ACCT2-102

EBP Engagement Profile Changes

• Additional questions related to Risk Assessment of SOC 1 Reports– Where is the testing of complementary user entity controls

documented?– Were there any changes in service providers?– What is the name of the CPA firm issuing the report?– What is the time period covered by the report(s)?

• Initial Audits– What procedures were performed on beginning balances?– Where are procedures documented?– Where in the workpapers is communication with predecessor

auditors documented?

• Reviewer conclusion on Engagement Profile added

P-ACCT2-103

AICPA's Initiatives and Resources to

Improve Audit Quality

P-ACCT2-104

Enhanced Audit Quality (EAQ) Initiative

• Launched in May 2014• Followed by the 6 Point Plan to Improve

Audits in May • EAQ is a holistic effort to consider auditing of

entities, including plans, through multiple touch points, especially where quality issues have emerged.

• Goal is to align the objectives of all audit-related AICPA efforts to improve audit performance.

P-ACCT2-105

For Information on the 6 Point Plan Refer to:

• http://www.aicpa.org/interestareas/peerreview/downloadabledocuments/eaq-6-point-plan.pdf.

• To access the Enhanced Audit Quality discussion paper, visit http://community.aicpa.org/enhancing_audit_quality_initiative/m/mediagallery/599.aspx.

• To access the Future of Practice Monitoring Concept Paper, visit• http://community.aicpa.org/future-practice-

monitoring/m/mediagallery/600.aspx.• More information and additional EAQ resources are available at

http://www.aicpa.org/InterestAreas/PeerReview/Pages/EAQ.aspx.

P-ACCT2-106

Initiatives and Resources to Improve Audit Quality

AICPA Competency Framework: Employee Benefit Plan Auditing

P-ACCT2-107

Initiatives and Resources to Improve Audit Quality

– EBPAQC Tool – Performing Quality ERISA Employee Benefit Plan Audits: Firm Best Practices

• Quality Control Specific to Your Firm’s EBP Audit Practice• Preparing Your Firm for the EBP Audit Season• Training• Educating Your Clients• Engagement Planning• Fieldwork• Engagement Wrap Up and Report Preparation• Post-Wrap Up and Issuance

P-ACCT2-108

AICPA Employee Benefit Plan Audit Certificate Programs

• Four new Employee Benefit Plan Audit certificates. • Developed these new certificate programs to help auditors

demonstrate their level of expertise and commitment to excellence

• Assist plan sponsors in selecting a qualified and competent auditor

• Available in 2016• Certificates

– Intermediate and advanced competency levels – CPE learning or a standalone exam, or both – Upon successful completion of the exam, a digital badge will be

awarded that can be used across the Internet to demonstrate competency at either an intermediate or advanced level

P-ACCT2-109

Enhancing Audit

Quality

EnforcementAggressive investigation of all referrals of deficiencies; enhanced coordination with state boards; reinforced rules on due care

Peer ReviewFocus on greater risk industries or areas; more significant remediation; root cause analysis; termination from peer review after repeat quality issues

Practice Monitoring of the FutureNear real‐time, ongoing monitoring of firm quality checks using robust technological platform

Standards and EthicsQuality control standards implementation; evaluation of clarified standards implementation; auditor’s report revisions; ethics codification

Pre‐licensureNext version CPA Exam; AP course; changes to accounting education; additional doctoral‐level audit professors with practical experience 

CPA Learning and SupportCompetency models for audits, competency assessment tools, targeted resources; certificate programs

Audit Quality Center resources, tools and training; CPEA; audit guides, risk alerts and practice aids

Enhance Audit Quality (EAQ)6-Point Plan to Improve Audits

69

P-ACCT2-110

AICPA Practice Aid on Maintaining a System of

Quality ControlFree Practice Aid athttp://www.aicpa.org/interestareas/frc/pages/enhancingauditqualitypracticeaid.aspx

Presents four hypothetical firms:• a multi-office firm;• a single-office firm;• a sole practitioner; and• a firm organized in an alternative practice structure.

P-ACCT2-111

Plan Advisories

• The Importance of Hiring a Quality EBP Auditor• EBP Financial Statement Audits • Plan Investments • Internal Controls • Monitoring Outsourced Recordkeeping and Reporting • Understanding Auditor Communications

P-ACCT2-112

Other Tools and Aids

• Firm Preparedness Checklist for Employee Benefit Plan Audits

• EBP Fraud Examples • Examples of Internal Control Communications • Internal Inspection Tool • Responding to Requests for Proposals • Marketing Toolkit

P-ACCT2-113

AQCEBP Audit Tools1. Summary of Key Plan Document Provisions Relevant to a Defined

Contribution Retirement Plan Audit2. Planning Tool: Summary of Common EBP Audit Deficiencies, Audit Guidance

and Resources3. Common EBP Audit Deficiencies 4. Summary of Significant “Unacceptable Major” Deficiencies in DOL Audit

Quality Study5. Documentation of the Evaluation of an Appraisal Used as Audit Evidence in

an Employee Stock Ownership Plan Financial Statement Audit6. Documentation of Use of a Type 2 Service Auditor’s Report in an Employee

Benefit Plan Financial Statement Audit7. Documentation of Use of an Actuarial Report in an Audit of a Defined Benefit

Plan’s Financial Statements8. Documentation of the Auditor’s Evaluation of a Limited Scope Audit

Certification 9. Documentation of Review of AICPA Independence Requirements where Non-

Attest Services were Performed for an Employee Benefit Plan Audit Client

P-ACCT2-114

Multiemployer Chapter

P-ACCT2-115

Multiemployer Chapter

• Task force formed• Organizational meeting held• Drafting of chapter over the next 12

months• To be reviewed by FinREC and ASB• Target date for 2018 Audit Guide

P-ACCT2-116

Content of Multiemployer Chapter

• General information• Governance—Use of committees• Plan administration—Third party vs. in-house• Employer contributions• Participant data testing• Real estate accounting• Unique features/audit areas• Auditing claims

P-ACCT2-117

Unique Features

• Reciprocity• Withdrawal liability• Suspension of benefits

on resuming work• Retirees in many states• Accumulated eligibility

credits• Testing actuarial data• Expenses may be

significant• Expanded use of

analytical procedures

• More service auditor’s reports

• Multiple investment managers

• Occupied buildings• Real Estate • Securities lending

concerns• Trustee expenses• Plan mergers• Plan terminations• UBIT• Allocation of expenses

P-ACCT2-118

General Information

• What is a multiemployer Plan• Laws and regulations• Types of plans• Plan documents

P-ACCT2-119

Employer Contributions

• Collections committee• Delinquent contributions• Completeness of contributions• Necessity for payroll audits

P-ACCT2-120

Withdrawal Liability

• Definition • Types of withdrawal

– Complete– Mass– Partial

• Auditor’s role– Close out audits– When to record liability– Audit income and remaining receivable– Determining collectability

• Controlled group issues

P-ACCT2-121

Real Estate and Occupied Buildings

• How to account for real estate and occupied buildings– Historical cost and depreciated– Fair Value no depreciation– Consolidate of separate entity

P-ACCT2-122

Auditing Claims

• In-house processing of claims• Testing claims paid and denied• Stratification of claims paid• Claims simulation

P-ACCT2-123

Necessity for Payroll Audits

• Fulfilling the completeness objective• Who performs the audits?• How many audits?• Type of report. Agreed upon procedures or

attestation• Review of payroll audits by independent

auditors• Do State and Local Government auditing

procedures apply?

P-ACCT2-124

Audit Risk and What Could Go Wrong

• Cash Balances• Investments and Related Income• Contributions and Contributions Receivable• Other Receivables (withdrawal liabilities)• Operating Assets• Accrued Liabilities• Benefit payments• Plan Expenses• Accumulated Plan Benefits and Participant Census Data• Plan Mergers and Terminations• Changes in Service Providers

P-ACCT2-125

We Need Your Input

• What Could Go Wrong?– DB plans– H&W plans– DC plans– Other Plans—(apprentice etc.)

• Remaining slides are what is in the DB chapter currently

P-ACCT2-126

Cash Balances

• Certain cash accounts, such as cash clearing accounts, suspense accounts, or cash disbursement accounts, may be omitted from the financial statements because these accounts may or may not be included in the trust statements. When cash balances are included, cash transactions or balances in bank statements may not reconcile to the plan’s financial statements, or ending cash balances from the prior year may not agree to beginning cash balances in the current year.

• Plans may have significant amounts of cash held by the trustee or custodian outside of the plan due to uncashed checks. This cash may not be properly accounted for in the plan’s financial statements.

P-ACCT2-127

Investments and Related Income

• Investment information from the trust (custodian) statement does not reconcile to the plan sponsor’s records (trial balance), financial statements, or other recordkeeper.

• Investment manager or subcustodian reports do not reconcile to trustee (custodian) reports.

• Investment transactions are not recorded by the trustee (custodian) or are not recorded on a timely basis.

• Investment purchase and sale transactions are not properly authorized prior to initiation or are not in accordance with the plan provisions or investment policies.

• Investments recorded in the financial statements do not exist or are not owned by the plan.

• Gains and losses on sales of investments are calculated incorrectly.• Investment income is recorded at an incorrect amount.• Investments are not properly recorded at fair value as of the reporting date due to

the use of inappropriate valuation methodologies, mathematical errors in the application of the methodology, or inaccurate inputs.

• Ivestment details (such as type of investment, name of issuer, CUSIP, investment identification, number of shares, maturity date, or interest rate) are incorrectly entered into the investment management system upon purchase.

P-ACCT2-128

Contributions and Contributions Receivable

• Employees are not appropriately included or excluded based upon the plan’s provisions (for example, age or service requirements are not met or part-time or leased employees).

• Employer contributions are not properly calculated or authorized, do not meet minimum funding requirements, or exceed maximum allowed funding limits.

• The contribution range determined by the actuary is misstated due to unreasonable assumptions, asset values in the actuarial valuation report are incorrect or unfunded, or amounts are not amortized or are amortized over an incorrect period.

• Contribution amounts per plan sponsor records do not reconcile to the trust statements and actuarial valuation.

• Contributions receivable are not recorded or are recorded in the incorrect period.

• Employer contributions are delinquent or uncollectable. (This is a common issue for multiemployer plans.)

• Improper accounting for amounts owed to the plan by participating employers who have withdrawn from a multiemployer plan.

• Differences between employer contribution amounts reported in the financial statements, the actuarial report, or Schedule SB or MB of the Form 5500 are not appropriately evaluated.

P-ACCT2-129

Other Receivables (withdrawal liabilities)

• Interest and dividends receivable are not properly accrued.• Income resulting from securities lending is not properly

accrued.• Amounts due from brokers for securities sold is not properly

recorded.• Derivative-related activity, such as receivables for variation

margin and foreign currency forward contracts, is not properly recorded.

• Reimbursements from the plan sponsor or service providers for fees, operational defects, or lost income are not properly recorded.

• Receivables due for legal settlements not properly recorded.

P-ACCT2-130

Operating Assets

• Detailed property records are not periodically reconciled to the recorded amounts.

• Assets are improperly expensed and not in accordance with capitalization policies.

• Depreciation is not calculated properly or not properly recorded in the financial statements.

• Assets used both in operations and for investment purposes are accounted for improperly.

• Improper accounting recognition of an impaired asset.

P-ACCT2-131

Accrued Liabilities

• Amounts due to brokers for securities purchased are not properly recorded.

• Unpaid administrative fees (for example, for actuaries, auditors, trustees, or ERISA counsel) are not appropriately accrued in the proper period.

• Investment management fees are not appropriately accrued in the proper period.

• Benefits payable are incorrectly recorded as a liability in the statement of net assets available for benefits instead of as an obligation in the statement of accumulated benefit obligations.

• Litigation settlements are not properly accounted for as an obligation.

P-ACCT2-132

Benefit Payments

• Benefit payment calculations are based on incorrect census data or incorrect actuarial inputs or calculated incorrectly or not in accordance with the participant’s benefit election. (It should be noted that benefit calculations can be performed either by the plan sponsor or a third party, such as the plan’s actuary.)

• Benefit payments are not properly authorized or in accordance with the provisions of the plan document.

• Benefit payments are made to a participant or beneficiary who is not eligible to receive benefits.

• If the plan sponsor has more than one DB plan, payments could be made out of the wrong plan.

• Fictitious or duplicate benefit payments are recorded.

• The formula used to compute the benefit does not agree to plan provisions, including the definition of compensation, or options selected by participants.

• Changes to the payroll data (including new hires, terminations, compensation changes, and variable compensation arrangements) are not properly authorized or accurately recorded as a result of fraudulent changes, unauthorized changes, or inaccurate processing of changes, resulting in incorrect data being sent to the payroll processing service provider or actuary from the payroll system.

• Benefits paid per the trustee do not agree to benefits paid per the actuary.

P-ACCT2-133

Plan Expenses

• Plan expenses do not represent allowable expenses per the plan document or regulatory provisions.

• Plan expenses are paid to fictitious vendors.• Plan expenses are not properly accrued or classified. • Plan expenses are not calculated in accordance with

service provider agreements.• Allocation of expenses between plans or between plan

sponsors is not apportioned correctly.• Plan expenses are not properly authorized prior to

recording and payment. • Plan expenses are not properly recorded by the

trustee or custodian.

P-ACCT2-134

Accumulated Plan Benefits and Participant Census Data

• The actuary does not have the appropriate qualifications or related experience to perform the valuation.

• Participant groups are inappropriately excluded from, or included in, the census data.

• If a plan sponsor maintains multiple DB plans, participants may not be reflected in the appropriate plan’s census data and accumulated plan benefits.

• Benefits paid per the actuary do not agree with benefits paid per the trustee or plan sponsor.

• Interest allocation computation for cash balance accounts does not agree with plan provisions.

• Participant data used by the actuary does not reconcile to the plan sponsor’s payroll and personnel records, such as beginning of the year versus end of the year information.

• The plan’s actuary maintains incomplete or incorrect census data or uses inappropriate factors or assumptions, causing inaccurate computations and errors in the accumulated plan benefits.

• The actuary calculates the accumulated plan benefits as of an incorrect valuation date.

• Participant contributions are not properly included in actuarial data.

• Accumulated benefit obligations of a 401(h) account are incorrectly included with the pension benefit obligation, and not in the health and welfare plan’s obligation.

• Accumulated plan benefit assumptions are not based on the plan provisions or plan experience, or they are inappropriate or unreasonable.

• Identified operational errors are not appropriately communicated to the actuary, which may result in an overstatement or understatement of the calculation of the accumulated benefit obligation.

• Participants who have requested a lump sum distribution at or near year-end but have yet to be paid are erroneously deleted or omitted or improperly removed from the census data.

• Plan amendments have not been properly included or excluded, depending on the valuation date.

• Plan sponsor does not maintain adequate records for accumulated benefit or benefit payments.

P-ACCT2-135

Plan Mergers

• Mergers and spin-offs are not recorded in the proper period.

• Appropriate assets, liabilities, and accumulated benefit obligations are not properly transferred.

• The value of assets and liabilities transferred do not reconcile between plans.

• Mergers and spin-offs are not fairly presented in the financial statements and appropriately disclosed.

• Plans have been merged or assets spun off without appropriate authorization.

P-ACCT2-136

Plan Terminations

• Plan terminations are not appropriately disclosed.

• The financial statements have not appropriately applied the liquidation basis of accounting, when applicable. This means that the financial statements are prepared on a going concern basis when liquidation is imminent, or prepared using the liquidation basis of accounting when liquidation is not imminent, as defined in FASB ASC 205-30.

• Benefit payments are not made only to, or on behalf of, persons entitled to them.

• New entrants have been admitted to the plan after the effective date of the plan freeze.

• Service accruals have continued beyond the effective date of the plan freeze.

• For a hard freeze, salary increases have continued to be applied to a frozen benefit.

• For a soft freeze, which allows for continued salary increases to apply, updated salaries have not been used in the actuarial valuation.

• Participant data used by the actuary does not reconcile to the plan sponsor’s payroll and personnel records.

• The plan’s actuary uses incomplete or incorrect census data, causing inaccurate computations and errors in benefit payments and estimating funding and benefit obligations.

• Participants were improperly excluded from or included in the census prior to the plan freeze.

• Plan sponsor does not maintain sufficient records to support the estimated benefit obligations or benefit payments.

P-ACCT2-137

Changes in Service Providers

• Amounts transferred between trustees and custodians are not accurate or allocated to the proper investment accounts.

• Participant data transferred between actuaries is not complete or accurate (for example, lost data, lost participants, or data only in summary form).

• Reconciliations are not completed between the predecessor service provider and new service provider.

• Payroll information transferred between payroll service providers is not complete or accurate.

• Benefit obligations are not calculated on a consistent basis by the successor actuary.

• Census data used by the predecessor actuary was not complete or was inaccurate.

P-ACCT2-138

Questions

P-ACCT2-139

Website Resources

https://www.ifebp.org/inforequest/ifebp/0167272.pdf

P-ACCT2-140

2017 Educational ProgramsFund Professionals—Accountants

63rd Annual Employee Benefits Conference October 22-25, 2017 Las Vegas, Nevadawww.ifebp.org/usannual

Accounting and Auditing Institute for Employee Benefit PlansJune 26-28, 2017 San Diego, Californiawww.ifebp.org/accounting

Fraud Prevention Institute for Employee Benefit PlansJuly 17-18, 2017Chicago, Illinoiswww.ifebp.org/fraudprevention

Collection Procedures InstituteNovember 15-16, 2017 Santa Monica, Californiawww.ifebp.org/collections

Related ReadingVisit one of the on-site Bookstore locations or see www.ifebp.org/bookstore for more books.

Payroll Auditing: A Guide for Multiemployer Plans, Second Edition Item #7303www.ifebp.org/books.asp?7303

816

NEW!

P-ACCT2-141