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Audit Communications and DOL Update. Limited Scope vs. Full Scope Audit Disclaimer of Opinion & Audit Communications Dawn Doucette, Audit Senior Manager.

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Presentation on theme: "Audit Communications and DOL Update. Limited Scope vs. Full Scope Audit Disclaimer of Opinion & Audit Communications Dawn Doucette, Audit Senior Manager."— Presentation transcript:

1 Audit Communications and DOL Update

2 Limited Scope vs. Full Scope Audit Disclaimer of Opinion & Audit Communications Dawn Doucette, Audit Senior Manager David Murray, Audit Senior Manager

3 Limited Scope vs Full Scope Audit ERISA section 103(a)(3) allows the plan administrator to instruct the auditor not to perform any auditing procedures with respect to investment information prepared and certified by a bank or similar institution or by an insurance carrier that is regulated, supervised, and subject to periodic examination by state or federal agency who acts as trustee or custodian. This election is available, however, only if the trustee or custodian certifies both the accuracy and completeness of the information submitted. The limited-scope audit exemption is implemented by 29 CFR of the DOL’s Rules and Regulations for Reporting and Disclosure under ERISA. The limited-scope exemption does not exempt the plan from the requirement to have an audit.

4 Limited Scope vs Full Scope Audit (continued) The exemption only applies to the investment information certified by the qualified trustee or custodian, and does not extend to participant data, contributions, benefit payments or other information whether or not it is certified by the trustee or custodian.

5 IRS Approved List SUB HEADING ONE Here is where you will type your slide. Continue until you fill up this square area. Nonbank Trustees Approved as of April 1, 2014 American Enterprise Investment Services, Inc. Croatian Fraternal Union of AmericaGuideStone Trust Services BB&T Securities, LLCD.A. Davidson & Co.Hartford Life Insurance Co. Barclays Capital, Inc.Deutsche Bank Securities Inc.Hartford Securities Distribution Co. Brethren in Christ Foundation, Inc.E*Trade Clearing LLCHealthEquity, Inc. Cetera Investment Services, LLCEdward D. Jones & Co., L.P.Illinois Mutual Life Insurance Co. Charles Schwab & Co., Inc.First Clearing, LLC (FKA First Clearing Corp) ING Direct Investing, Inc. Church Extension PlanFirst Investors CorporationISDA Fraternal Association Citi Fund Services, Inc.Goldman, Sachs & Co.J.J.B. Hilliard, W.L. Lyons, LLC Citigroup Global Markets, Inc.Greater Beneficial Union of the USAJ.P. Morgan Clearing Corp. Commonwealth of KentuckyGreek Catholic Union of the U.S.A.Janney Montgomery Scott, LLC

6 IRS Approved List SUB HEADING ONE Here is where you will type your slide. Continue until you fill up this square area. Nonbank Trustees Approved as of April 1, 2014 (continued) John Hancock Life & Health Insurance Co.National Slovak Society of the USAPiper Jaffray & Co MEGA Life and Health Insurance Co.Oxford Life Insurance CompanyPolish Falcons of America Merrill, Lynch, Pierce, Fenner & Smith, Inc.PayFlex Systems USA, Inc.Principal Life Insurance Company Merrimack Valley Investment, Inc.Pension Fund of The Christian ChurchPWMCO, LLC Mesirow Financial, Inc.Penson Financial Services, Inc.RBC Capital Markets MII Life, Inc. dba Select AccountPerkins Coie Trust CompanyReserve Management Company, Inc. Moody Bible Institute of ChicagoPershing LLCRidge Clearing and Outsourcing Solutions Morgan Stanley & Co. IncorporatedPFS Investments, Inc.Robert W. Baird & Co., Inc. Morgan Stanley Smith BarneyPioneer Investment Management USASanford C. Bernstein & Co., LLC

7 IRS Approved List SUB HEADING ONE Here is where you will type your slide. Continue until you fill up this square area. Nonbank Trustees Approved as of April 1, 2014 (continued) Scottrade, Inc.UBS Financial Services, Inc. Serb National FederationUkrainian National Association SMA Services, Inc.Unified Financial Securities, Inc. Southwest Securities, Inc.Variable Annuity Life Insurance Company Stephens, Inc.Wedbush Morgan Securities Sterne, Agee & Leach, Inc.Wells Fargo Advisors, LLC Stifel, Nicolaus & Co., Inc. StockCross Financial Services, Inc. TD Ameritrade Clearing, Inc.

8 Limited Scope vs. Full Scope Audit SUB HEADING ONE Here is where you will type your slide. Continue until you fill up this square area. Comparison of Major Aspects of Full Scope Audits and Limited Scope Audits Audit AspectsFull Scope AuditLimited Scope Audit Provides auditor's opinion on plan's financial statements Yes (unqualified, qualified, or adverse opinion)No (disclaimer of opinion). Auditor audits plan investments Yes. Auditor tests for existence, valuation, completeness, ownership and proper disclosures. No. Plan sponsor instructs auditor not to test investments (including the value of the investments and any income thereon) that are covered by the certification (including hard to value assets). Requires addressing hard to value asset issues for financial reporting Plan sponsor must assert proper values in the plan's financial statements. Auditor needs to address hard to value asset issues. Plan sponsor must assert proper values in the plan's financial statements. Auditor is instructed not to audit hard to value assets if they are properly covered by the certification. Audit scope includes testing of participant records, contributions, benefit payments, internal controls over financial reporting, and overall presentation of financial statements Yes. Yes, except the auditor does not evaluate internal controls for certified investments and generally cannot evaluate whether the plan's financial statements overall are presented in accordance with GAAP due to the significance of the certified investments reported but not audited. Fraud evaluation Auditor obtains reasonable, but not absolute, assurance that the financial statements are not materially misstated due to fraud. Not all fraud may be detected in an audit. A well-concealed or insignificant fraud may avoid detection. Same as full scope audit except the auditor does not test certified investments for possible fraud; thus any fraud, with respect to certified investments would likely avoid detection by the plan's auditor. Audit identifies any internal control, compliance or operational issues Yes. Significant matters detected by the auditor are reported to those charged with plan governance. Same as full scope audit except that matters related to certified investments are not tested by the auditor.

9 Disclaimer of Opinion Disclaimers of opinion are sometimes issued by an auditor. This type of auditor’s statement essentially makes it clear that the auditor is not in a position to express a specific opinion on the overall status of the financial records of the Plan. This letter may be issued when there is any type of situation (i.e. investments certified by custodian/trustee) where the auditor is not able to complete procedures to his or her satisfaction.

10 Disclaimer of Opinion (continued) The actual structure of a disclaimer of opinion may vary slightly from one instance to another. However, the letter will contain three specific pieces of information in all cases: First, the auditor will formally state that he or she is unable to express an opinion as permitted by the Department of Labor. The next section will identify the specific reasons why the auditor is unable to provide an unqualified opinion (because the Plan investments were certified by an authorized third party). As a third element, the auditor will provide any reservations present in regard to the financial records that were provided.

11 Disclaimer of Opinion (continued) Essentially, the opinion is a letter from the accountant stating that the financial statements are in accordance with generally accepted accounting standards. The disclaimer of opinion issued during a DOL limited scope audit is due to the lack of procedures performed on investments, and make it impossible for the auditor to affirm the completeness of the information provided.

12 DOL Limited-scope Audit Engagement Letter Required by the Department of Labor’s (DOL) Rules and Regulations for Reporting and Disclosure under ERISA to be filed with Form 5500 Comprise the statements of net assets available for benefits Related statement(s) of changes in net assets available for benefits Notes to the financial statements Supplementary information accompanying the financial statements Assets (Held at End of Year) Delinquent Participant Contributions

13 DOL Limited-scope Audit Engagement Letter (continued) Audit Objective We will not perform any auditing procedures with respect to information prepared and certified to by, the trustee, in accordance with DOL Regulation , other than comparing the information with the related information included in the financial statements and supplemental schedules. Because of the significance of the information that we will not audit, we will not express an opinion on the financial statements and supplemental schedules taken as a whole. We cannot provide assurance that a limited-scope disclaimer of opinion as permitted by Regulation of the DOL’s Rules and Regulations for Reporting and Disclosure under ERISA will be expressed.

14 DOL Limited-scope Audit Engagement Letter (continued) Audit Procedures At the conclusion of our audit, we will require certain written representations from you about the financial statements and related matters.

15 DOL Limited-scope Audit Engagement Letter (continued) Management Responsibilities Oversee the services by designating an individual, preferably from senior management, with suitable skill, knowledge, and/or experience; evaluate the adequacy and results of the services; and accept responsibility for them. You are responsible for establishing and maintaining internal controls, including monitoring ongoing activities; for the selection and application of accounting principles; For the preparation and fair presentation of the financial statements in conformity with U.S. generally accepted accounting principles. Responsible for making all financial records and related information available to us and for the accuracy and completeness of that information, including the completeness and accuracy of the certification by the trustee.

16 Communication with Those Charged with Governance during Planning Main Items Discussed: Our Responsibility under U.S. Generally Accepted Auditing Standards Planned Scope and Timing of the Audit When we expect to begin our audit and the issuance date (extended filing deadline of October 15).

17 Standard Plan Inquiries Any consultations with legal counsel Any IRS examinations in progress Are you in compliance with the fidelity bonding requirements Commitments & Contingencies

18 Standard Plan Inquiries (continued) Amendments to the Plan or trust instruments since year end Decisions after plan year end to terminate the plan Subsequent Events

19 Standard Plan Inquiries (continued) Errors, irregularities, or illegal acts concerning the Plan Instance of actual or suspected fraud affecting the Plan Areas(s) that would be susceptible to fraud relating to the Plan for which we would need to focus our attention Fraud or Illegal Acts

20 Standard Plan Inquiries (continued) Any board or governing body meeting minutes during the Plan year which specifically address any matters related to the Plan. Board Meeting Minutes

21 Management Representation Letter We confirm, to the best of our knowledge and belief, as of, the following representations made to you during your audit: We have fulfilled our responsibilities, as set out in the terms of the audit engagement letter The financial statements are fairly presented in conformity with U.S. GAAP, the notes include all disclosures required by laws and regulations to which the plan is subject, including the DOL Rules and Regulations for Reporting and Disclosure under ERISA, and the supplemental schedules referred to above are fairly presented in conformity with the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of All events subsequent to the date of the financial statements and for which U.S. GAAP requires adjustment or disclosure have been adjusted or disclosed. Financial Statements

22 Management Representation Letter (continued) Access to all information We have no knowledge of any fraud or suspected fraud that affects the plan Intentions to terminate the plan Amendments to the plan instrument, if any, have been properly recorded or disclosed in the financial statements Information Provided

23 Management Representation Letter (continued) The plan (and the trust established under the plan) is qualified under the appropriate section of the Internal Revenue Code and we intend to continue them as a qualified plan (and trust). The plan has complied with the Department of Labor’s regulations concerning the timely remittance of participant contributions to trusts containing assets for the plan. The plan has complied with the fidelity bonding requirements of ERISA. Information Provided (continued)

24 Communication with Those Charged with Governance at Audit Conclusion Qualitative Aspects of Accounting Practices You are responsible for the selection and use of appropriate accounting policies. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in performing and completing our audit. Significant Audit Findings

25 Communication with Those Charged with Governance at Audit Conclusion (continued) Disagreements with Management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our audit. Significant Audit Findings (continued)

26 Communication of Significant Deficiencies Most common findings we see relate to: Waiver forms Incorrect employer matching Incorrect vesting Inability to verify deferral percentages Delinquent contributions


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