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Audits of 401(k) Plans




Audits of 401(k) Plans

Deloitte & Touche Consulting Group

ISBN: 978-1-119-51222-6 March 2018 304 Pages

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Tap into ways to plan and conduct 401(k) audits more efficiently and effectively! Because 401(k) plans make a popular option for employee benefit plans, auditors of employee benefit plans must have the proper skills to audit these plans. In this book, you will work through how to audit a 401(k) plan and prepare financial statements that satisfy Employee Retirement Income Security Act (ERISA) and SEC requirements.

This book explains the differences between 401(k) audits and other employee benefit plan audits and outlines FASB Accounting Standards Update (ASU) No. 2015-07 and FASB ASU No. 2015-12, which continue to be hot topics due to the impact on accounting, reporting, and disclosures for employee benefit plans. Key changes include PCAOB AS 3101 on new auditor reporting standards and FASB 2017-06 on master trust reporting.

This book will allow readers to:

  • Recognize the requirements for 401(k) audits to distinguish between audits of other types of employee benefit plans and 401(k) plans.
  • Identify efficient and effective ways to plan and conduct 401(k) audits.
  • Recognize new developments affecting 401(k) audits.

Chapter 1 1-1

Introduction and Background 1-1

Background Information 1-2

Operation and Administration 1-5

Accounting Records 1-7

Reporting Standards 1-9

Governmental Regulations 1-10

Audit Requirements 1-11

Reporting and Disclosure Requirements Under ERISA 1-15

SEC Form 11-K Filing Requirements 1-16

ERISA Limited-Scope Audits 1-17

Chapter 2 2-1

Planning 2-1

Pre-Engagement Activities 2-3

Audit Planning 2-6

Communication and Coordination 2-10

Understanding the Plan and Its Environment, Including Its Internal Control 2-11

Audit Documentation 2-13

Preliminary Analytical Review Procedures 2-14

Audit Risk Factors 2-15

Internal Control Structure 2-24

Consideration of Fraud 2-25

Plan’s Use of Third-Party-Party Service Organizations 2-31

Party in Interest Transactions 2-32

 Plan’s Use of Voice Response or Internet Recordkeeping System 2-34

Accounting Estimates 2-35

Going Concern Considerations 2-36

Chapter 3 3-1

Internal Control Structure 3-1

Understanding Internal Control 3-3

The Components of Internal Control 3-5

Acquiring Knowledge of the Controls 3-7

Assessing Control Risk 3-8

Plan’s Use of Third-Party Service Organizations 3-9

Plan’s Use of Voice Response and Internet-Based Recordkeeping Systems 3-14

Documentation 3-15

Communicating Control Deficiencies 3-16

Chapter 4 4-1

Auditing the Statement of Net Assets Available for Benefits 4-1

Accounting Guidance 4-3

Listing of Investments 4-5

Valuation of Investments 4-6

Investment Options 4-7

Audit Objectives 4-10

Audit Procedures 4-11

Investments in Master Trusts and Similar Vehicles 4-13

Investments in Registered Investment Companies (Mutual Funds) and Common or Commingled Trust Funds 4-14

Investments With Insurance Companies 4-16

Direct Filing Entities (DFE) 4-21

Other Investments 4-22

ERISA Limited-Scope Auditing Procedures 4-25

Contributions Receivable 4-27

Notes Receivable From Participants Receivable 4-28

Cash Balances 4-30

Other Assets 4-31

Accrued Liabilities 4-32

Chapter 5 5-1

Auditing the Statement of Changes in Net Assets Available for Benefits 5-1

Investment Income 5-3

ERISA Limited-Scope Audit 5-7

Investment Expenses 5-8

Contributions From Employers 5-9

Individual Participant Accounts 5-12

Participant Eligibility 5-16

Contributions From Other Identified Sources 5-17

Withdrawals 5-18

Loans 5-19

Administrative Expenses 5-21

Chapter 6 6-1

Other Auditing Considerations 6-1

Plan Tax Status 6-2

Testing for Discrimination 6-6

Consequences of Violations 6-7

Failure to Pass Nondiscrimination Tests 6-8

Commitments and Contingencies 6-9

Subsequent Events 6-11

Representations From Plan Management 6-13

Illustrative Attachment to Management Representation Letter 6-17

Form 5500 and Supplemental Schedules 6-20

Information for Supplemental Schedules From Trustee or Custodian 6-27

Terminating Plans 6-31

Plan Mergers 6-34

Party in Interest Transactions 6-35

Initial Audit of the 401(k) Plan 6-40

Form 11-K: The Sarbanes-Oxley Act of 2002 6-42

Communication With Those Charged With Governance 6-45

Chapter 7 7-1

The Auditor’s Report and Financial Statement Disclosures 7-1  

The Auditor’s Report 7-4

Standard Report 7-6

Additional Communications: Emphasis-of-Matter and Other-Matter Paragraphs 7-8

Modified Reports 7-10

Non-GAAP Basis Financial Statements 7-12

Reports Filed Pursuant to the SEC Form 11-K 7-14

ERISA Limited-Scope Reports 7-17

Financial Statement Disclosures 7-20

Appendix A A-1

ERISA and Related Regulations A-1

Appendix A A-3

Glossary 1

Index 1

Solutions 1

Chapter 1 Solutions 1

Chapter 2 Solutions 3

Chapter 3 Solutions 4

Chapter 4 Solutions 6

Chapter 5 Solutions 8

Chapter 6 Solutions 9

Chapter 7 Solutions 13