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Employee Benefit Plans 2018

Employee Benefit Plans 2018

AICPA

ISBN: 978-1-119-52908-8 May 2018 896 Pages

O-Book
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Description

Considered the industry standard resource, this guide provides practical guidance, essential information and hands-on advice on the many aspects of accounting and authoritative auditing for employee benefit plans. This new edition has been updated to include additional information related to the issuance of the going concern standard, revisions to provide further guidance related to limited-scope audits, a new illustrative auditor's report for 11-K audits, and has been revised for the recodification of the attestation standards.

Updates include:
  • Q&A section 2220.27, "Determining When the Practical Expedient is Not Used or Not Available"
  • Q&A section 2220.28, "Definition of Readily Determinable Fair Value and Its Interaction with the NAV Practical Expedient"
  • SAS No. 132, The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern
  • PCAOB Release No. 2015-008, “Improving the Transparency of Auditsâ€?
  • AS 3101, The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion
  • SSAE No. 18, Attestation Standards: Clarification and Recodification

1 Introduction and Background .01-.37

Introduction .01-.07

Applicability to Governmental Entities .04-.07

Background .08-.12

Defined Contribution Retirement Plans .09

Employee Stock Ownership Plans .10

Defined Benefit Pension Plans .11

Health and Welfare Benefit Plans .12

Financial Accounting and Reporting for ERISA Plans .13-.21

Governmental Regulations .15

Reporting and Disclosure Requirements .16-.19

Plans Pursuant to the SEC Reporting Requirements .20-.21

Audit Requirements .22-.24

Operation and Administration .25-.34

Accounting Records .35-.37

2 Planning and General Auditing Considerations .01-.142

Overview .01-.10

Categories of Professional Requirements .08-.09

Interpretive Publications .10

Quality Control Standards, Including Client Acceptance and Continuance and Engagement Quality Control Reviews .11-.18

Client Acceptance and Continuance .11-.16

Engagement Quality Control Review .17-.18

Audit Scope .19-.38

Limited-Scope Audit Exemption .22-.26

Other Applicable Auditing Guidance .27-.30

Communication With Those Charged With Governance .31-.38

Engagement Letter .39-.43

Audit Planning .44-.62

Coordination of Plan Sponsor and Plan Audits .48

Considerations for Payroll and Demographic Data .49-.53

Use of Internal Auditors .54-.57

Involvement of Professionals Possessing Specialized Skills .58-.59

Financial Reporting Considerations .60-.61

Communication and Coordination .62

Audit Risk .63

Transactions Processed by Service Organizations .64

Using the Work of a Specialist .65-.94

Background .65

Decision to Use the Work of a Specialist .66-.94

Related-Party and Party in Interest Transactions .95-.116

Audit Considerations .106-.116

Consideration of Laws and Regulations and Prohibited Transactions .117-.128

Communication With Responsible Parties .125

Effect on the Auditor’s Report .126-.128

Accounting Estimates .129-.130

Going Concern Considerations .131-.133

Initial Audits of the Plan .134-.142

3 Audit Risk Assessment .01-.71

Overview .01

Audit Risk .02-.06

Planning Materiality .07-.11

Performance Materiality .10-.11

Understanding the Entity and Its Environment, Including Its Internal Control .12-.29

Risk Assessment Procedures .15-.22

Discussion Among the Engagement Team .23-.24

The Entity and Its Environment .25-.27

The Entity’s Internal Control .28-.29

Risks Assessment and the Design of Further Audit Procedures .30-.49

Identifying and Assessing the Risks of Material Misstatement .30

Use of Assertions in Assessment of Risks of Material Misstatement .31-.36

Other Risk Assessment Considerations .37

Designing and Performing Further Audit Procedures .38-.49

Evaluation of Misstatements Identified During the Audit .50-.53

Audit Documentation .54-.55

Consideration of Fraud .56-.71

Risk Assessment Procedures and Related Activities .58-.60

Identification and Assessment of the Risks of Material Misstatement Due to Fraud .61-.68

Evaluation of Audit Evidence 69-.71

4 Internal Control .01-.28

Using a Service Organization and Related Audit Considerations .11-.28

5 Defined Contribution Retirement Plans Including Employee Stock Ownership Plans .01-.801

5A Defined Contribution Retirement Plans .01-[.399]

Introduction and Background .01-.05

Administration and Operation of a DC Plan .06-.08

Accounting, Reporting, and Auditing DC Plans .09-.10

Financial Statements .11-.12

Net Assets Available for Benefits .13-.67

Participant Allocations .14-.15

Cash Balances .16-.19

Investments .20-.48

Participant Loans (Notes Receivable From Participants) .49-.51

Contributions and Contributions Receivable .52-.56

Rollover Contributions .57-.58

Other Receivables .59

Forfeitures .60-.62

Operating Assets .63-.64

Accrued Liabilities .65-.67

Changes in Net Assets Available for Benefits .68-.76

Participant Benefits, Distributions, and Withdrawals .72

Benefit Payments .73

Plan Expenses .74-.76

Financial Statement Disclosures .77-.94

Fair Value Measurements .80

Derivatives and Hedging .81-.85

Master Trusts .86-.88

Financial Instruments .89-.90

Risks and Uncertainties 91-.94

403(b) Plans or Arrangements 95-.98

Plan Transfers (Plan Mergers, Spin-Offs, and Other Transfers) .99-.103

Going Concern .104

Terminating Plans (Full and Partial) .105-.112

Changes in Service Providers .113-[.199]

Auditing Considerations for DC Plans .200-[.399]

Determining Audit Strategy .204-.207

Participant Accounts and Allocations .208-.210

Cash Balances .211-.215

Investments and Related Income .216-.228

Notes Receivable From Participants (Participant Loans) .229-.232

Contributions and Certain Participant Data .233-.234

Contributions and Contributions Receivable .235-.246

Rollover Contributions .247-.248

Other Receivables .249-.251

Forfeitures .252-.254

Operating Assets .255-.256

Accrued Liabilities .257-.259

Participant Benefits, Distributions and Withdrawals .260-.263

Plan Expenses .264-.267

Plan Transfers (Plan Mergers, Spin-Offs, and Other Transfers) .268-.272

Terminating Plans .273-.275

Changes in Service Providers .276-.278

SEC Reporting Requirements .279-[.399]

5B Employee Stock Ownership Plans .400-.[.799]

Introduction and Background .400-.421

Participant Allocations .406-.408

Valuation Terminology .409

Contributions .410

Distributions .411

Voting Rights .412

Put Option .413

Diversification .414-.416

Financing Employer Stock Purchases .417-.418

Suspense Account (Unallocated Shares) .419

Share Release Formula .420

Debt Service Payment .421

Administration and Operation of an ESOP .422-.423

Regulatory Reporting Requirements .424

Accounting, Reporting, and Auditing ESOPs .425-.426

Financial Statements .427-.429

Net Assets Available for Benefits .430-.461

Allocations .433-.436

Cash Balances .437

Investments .438-.442

Valuation Techniques .443-.448

Participant Loans .449

Contributions and Contributions Receivable .450-.452

Rollover Contributions .453

Other Receivables .454

Forfeitures .455-.457

Leveraged ESOP Debt .458-.459

Accrued Liabilities .460

Other Liabilities .461

Changes in Net Assets Available for Benefits .462-.473

Participant Benefits, Distributions, and Withdrawals .468-.470

Plan Expenses .471-.473

Financial Statement Disclosures .474-.492

Fair Value Measurements .478-.483

Financial Instruments .484-.485

Risks and Uncertainties .486-.490

Subsequent Event Considerations for ESOPs .491

Prohibited Transactions and Party in Interest Transactions .492

Plan Transfers (Plan Mergers, Spin-Offs, and Other Transfers) .493

Going Concern .494

Terminating Plans (Full and Partial) .495-.501

Changes in Service Organization .502-[.599]

Auditing Considerations for ESOPs .600-[.799]

Determining Audit Strategy .604-.607

Valuation Terminology .608

Risk Assessment Considerations .609

Participant Accounts and Allocations .610-.613

Cash Balances .614

Investments and Related Income .615-.628

Limited-Scope Auditing Considerations .629-.631

Contributions and Certain Participant Data .632

Contributions and Contributions Receivable .633-.638

Rollover Contributions .639

Forfeitures .640-.642

Leveraged ESOP Debt and Interest Expense .643-.646

Accrued Liabilities .647

Other Liabilities—Employer Advances .648-.651

Participant Benefits, Distributions and Withdrawals .652-.658

Floor Price Protection .659-.662

Plan Expenses .663

Plan Mergers and Spin-offs .664

Terminating Plans (Full and Partial) or Frozen Plans .665-.770

Changes in Service Providers .671-[.799]

Appendix A—Defined Contribution Retirement Plan .800

Appendix B—Regulations, Administration, and Operation of an ESOP .801

6 Defined Benefit Pension Plans .01-.205

Introduction and Background .01-.04

Administration and Operation of a DB Plan .05-.07

Accounting, Reporting, and Auditing DB Plans .08-.11

Financial Statements .12-.15

Net Assets Available for Benefits .16-.71

Cash Balances .16-.20

Investments .21-.55

Contributions and Contributions Receivable .56-.65

Other Receivables .66

Operating Assets .67-.68

Accrued Liabilities .69-.71

Changes in Net Assets Available for Benefits .72-.78

Benefit Payments .75

Plan Expenses .76-.78

Accumulated Plan Benefits .79-.93

Changes in Accumulated Plan Benefits .94

Financial Statement Disclosures .95-.114

Fair Value Measurements .99

Derivatives and Hedging .100-.105

Master Trusts .106-.107

Financial Instruments .108-.109

Risks and Uncertainties .110-.114

Plan Transfers (Plan Mergers, Spin-Offs, and Other Transfers) .115-.120

Going Concern .121

Terminating Plans (Full or Partial) and Frozen Plans .122-.133

Terminating Plans .122-.130

Frozen Plans .131-.133

Changes in Service Providers .134

Auditing Considerations for DB Plans .135-.204

Determining Audit Strategy .139-.142

Cash Balances .143-.147

Investments and Related Income .148-.156

Contributions and Contributions Receivable .157-.168

Other Receivables .169-.171

Operating Assets .172-.174

Accrued Liabilities .175-.177

Benefit Payments .178-.181

Plan Expenses .182-.185

Accumulated Plan Benefits and Participant Census Data .186-.192

Plan Transfers (Plan Mergers,Spin-Offs, and Other Transfers) .193-.197

Terminating Plans (Full or Partial) or Frozen DB Plans .198-.201

Changes in Service Providers .202-.204

Appendix A—Defined Benefit Pension Plan

Operations and Administration .205

7 Health and Welfare Benefit Plans .01-.237

Introduction and Scope .01-.11

Trust Arrangements .05-.07

Defining the Reporting Entity .08-.11

Background .12-.17

Administration of a Health and Welfare Benefit Plan .12

HIPAA Considerations .13-.15

Annual Health Care Process .16-.17

Health and Welfare Arrangements .18-.25

Accounting and Reporting for H&W Plans .20-.25

Financial Statements .26-.31

Defined Benefit H&W Plan .26-.28

Defined Contribution H&W Plan .29-.31

Net Assets Available for Benefits 32-.74

Cash .33-.37

Investments .38-.54

401(h) Accounts .55-.58

Contributions and Contributions Receivable .59-.62

Other Receivables .63-.65

Deposits With and Receivables From Insurance Companies and Other Service Providers .66-.70

Operating Assets .71-.72

Accrued Liabilities .73-.74

Changes in Net Assets Available for Benefits .75-.87

Benefit Payments .78

Insurance Premiums .79-.83

Plan Expenses .84-.87

Benefit Obligations .88-.124

Claims .91-.98

Premiums Due Under Insurance Arrangements .99-.101

Accumulated Eligibility Credits .102-.103

Postemployment Benefits .104-.110

contiPostretirement Benefit Obligations .111-.124

Changes in Benefit Obligations .125-.126

Financial Statement Disclosures .127-.144

Fair Value Measurements .133

Derivatives and Hedging .134-.138

Financial Instruments .139-.140

Risks and Uncertainties .141-.144

Plan Transfers (Plan Mergers, Spin-Offs, and Other Transfers) .145-.146

Going Concern .147

Terminating Plans .148-.157

Terminating Trusts .158-.159

Tax Considerations .160-.165

Changes in Service Providers .166

Auditing Considerations for H&W Plans .167-.234

Determining Audit Strategy 171-.174

Confidentiality or Indemnification Agreements .175

Cash Balances .176-.179

Investments and Related Income .180-.187

Contributions and Contributions Receivable .188-.192

Other Receivables .193-.195

Deposits With, and Receivables From, Insurance Companies and Other Service Providers .196-.198

Operating Assets .199

Accrued Liabilities .200-.202

Benefit and Claim Payments .203-.209

Insurance Premiums .210-.212

Plan Expenses .213-.216

Benefit Obligations—Defined Benefit H&W Plans .217-.228

Defined Contribution H&W Plans .229

Plan Transfers (Plan Mergers, Spin-Offs, and Other Plan Transfers) .230

Terminating Plans or Frozen H&W Plans .231-.233

Changes in Service Providers .234

Appendix A—The Annual Health Care Process .235

Appendix B—Examples of Health and Welfare Arrangements .236

Appendix C—Risk Assessment and Internal Control Considerations—Claim Payments .237

8 Investments .01-.174

Introduction .01-.02

Background 03-.14

Investment Activities and the Use of Service Organizations .08

The Investment Manager or Adviser .09

The Custodian .10

The Trustee (Directed and Discretionary) .11-.13

Investment Recordkeeper .14

Valuation of Investments .15-.16

Fair Value Measurement .17-.35

Definition of Fair Value .19

Definition of Readily Determinable Fair Value .20

Valuation Techniques .21-.23

The Fair Value Hierarchy .24-.25

Considerations When Determining Fair Value .26-.27

Fair Value Disclosures .28-.35

Accounting and Disclosure for Investments .36-.38

Statement of Net Assets Available for Benefits .36-.37

Statement of Changes in Net Assets Available for Benefits .38

RICs (Mutual Funds) .39

Investments in CCTs .40-.42

Master Trust Arrangements .43-.48

Other Investments .49-.52

Private Investment Funds .49

Separately Managed Accounts .50

Investments Reported as 103-12 Entities as Required by the DOL .51-.52

Contracts With Insurance Entities .53-.68

DA Contracts .60-.62

IPG Contracts .63

Other Investment Arrangements With Insurance Entities .64-.68

Derivatives and Hedging Activities .69-.79

Offsetting of Derivatives, Repurchase Agreements, and Securities Lending Transactions .76-.79

Securities Lending Arrangements .80-.84

Financial Statement Disclosures .85-.96

Insurance Contracts .86-.88

Fair Value Measurements .89

Financial Instruments .90-.91

Risks and Uncertainties .92-.93

Master Trusts .94

Derivatives and Hedging Activities .95

Securities Lending .96

Auditing Considerations for Investments .97-.174

Risk Assessment and Internal Control Considerations for Investments .98-.115

Determining Audit Strategy .116-.126

Investments and Related Income .127-.129

Audit Procedures for Certain Plan Investments .130-.163

Investments in Securities That Are Valued Based on the Investee’s Financial Results .164-.166

Limited-Scope Auditing Procedures .167-.174

9 Plan Tax Status .01-.31

Nondiscrimination and Other Operating Tests for Plan Qualification .12-.14

Unrelated Business Taxable Income .15-.20

Income Taxes .21-.25

Auditing Considerations .26-.31

Relevant Assertions .26

Examples of Identified Risks of What Can Go Wrong at the Relevant Assertion Level .27

Example Audit Procedures to Consider .28-.31

10 Concluding the Audit and Other Auditing Considerations .01-.40

The Form 5500 .03-.08

Reports Issued Prior to the Form 5500 Filing .07-.08

Commitments and Contingencies .09-.13

Litigation, Claims, and Assessments .11-.13

Subsequent Events .14

Evaluating the Risk of Material Misstatement Due to Fraud at or Near the End of the Audit .15

Plan Representations .16-.22

Management Representation Letter .22

Communications With Those Charged With Governance .23-.35

Significant Findings From the Audit .27-.35

Communicating Internal Control Related Matters Identified in an Audit .36-.39

DOL Access to Auditors Working Papers .40

11 The Auditor’s Report .01-.91

What This Chapter Provides .03-.05

Background .06-.17

Forming an Opinion .07-.14

Addressing the Auditor’s Report .15

Dating of the Auditor’s Report .16

Content of the Auditor’s Report .17

Supplemental Schedules Relating to ERISA and DOL Regulations (Full-Scope Audits for Nonissuers) .18-.24

Full-Scope Audit Considerations .19-.24

Unmodified Opinions—Defined Contribution Retirement Plans .25-.34

401(k) Plan (U.S. GAAP) .25

401(k) Plan—Special Purpose Framework .26-.34

Unmodified Opinions—Defined Benefit Pension Plans .35-.36

Illustration of Auditor’s Report on Financial Statements of Defined Benefit Pension Plan Assuming End-of-Year Benefit Information Date .35

Illustration of Auditor’s Report on Financial Statements of DB Plan Assuming Beginning-of-Year Benefit Information Date .36

Unmodified Opinion—Health and Welfare Benefit Plans .37

Unmodified Opinion—Reporting on the Financial Statements of a Trust .38-.39

Unmodified Opinion—Form 11-K Filings With the SEC .40-.45

Form 11-K Audit Report for Filing With the SEC .44

Form 11-K Audit Report for Filing With the DOL .45

Full-Scope Audits—Unmodified Opinions on the Financial Statements With Modifications to the Report on Supplementary Information .46-.52

Departures From, or Omission of, Supplementary Information Required by the DOL .46-.49

Omitted Information in a Schedule Required Under DOL Regulations .50

Omitted Schedule Required Under DOL Regulations .51

Qualified Report on Supplementary Information—Omitted Information .52

Prohibited Transactions .53-.56

Qualified Report—Disclosure of Material Prohibited Transaction With Party in Interest Omitted .54

Disclosure of Immaterial Prohibited Transaction With Party in Interest Omitted .55

Prohibited Transaction With Party in Interest That Is Also Considered a Related-Party Transaction .56

Limited-Scope Audits Under DOL Regulations .57-.71

Reporting on Supplemental Schedules—Limited-Scope Audit Considerations .61-.63

Standard Limited-Scope Audit Report .64

Limited-Scope Audit in Prior Year .65-.67

Limited-Scope Audit in Current Year .68-.69

Limited-Scope Audit in Current Year, Prior Year Limited-Scope Audit Performed by Other Auditors .70-.71

Change in Trustee .72

Reporting on Supplemental Schedules in a Limited-Scope Audit .73-.76

Standard Limited-Scope Audit Reports With Modifications to the Report on Supplemental Schedules .77-.79

Omitted Schedule Required Under DOL Regulations in a Limited-Scope Engagement .78

Modified Opinion on Supplemental Schedules—Omitted Information Required Under DOL Regulations in a Limited-Scope Engagement .79

Other Scope Limitations .80

Disclaimer of Opinion on Audit of Multiemployer Pension Plan Due to Scope Limitation .80

Accumulated Plan Benefits—GAAP Departures and Changes in Accounting Estimates .81-.83

Terminating Plans .84-.85

Substantial Doubt With Respect to Going Concern .86-.87

Initial Audits of Plans .88

Prior Period Financial Statements Not Audited .89-.91

Appendix

A ERISA and Related Regulations

B Examples of Controls

C Illustrations of Financial Statements: Defined Contribution Retirement Plans

D Illustrations of Financial Statements: Employee Stock Ownership Plans

E Illustrations of Financial Statements: Defined Benefit Pension Plans

F Illustrations of Financial Statements: Health and Welfare Benefit Plans

G Consideration of Fraud in a Financial Statement Audit

H Schedule of Changes Made to the Text From the Previous Edition

Glossary

Index of Pronouncements and Other Technical Guidance

Subject Index