The AICPA Employee Benefit Plan Audit Quality Center (EBPAQC) has issued a plan advisory called “The Importance of Hiring a Quality Auditor to Perform Your Employee Benefit Plan Audit.” This advisory is a helpful guide for plan administrators that explains the important process of hiring an auditor with the proper experience to audit employee benefit plans.
Under Federal law, most employee benefit plans with over 100 eligible employees must submit audited plan financial statements when they file an annual return/report (Form 5500). The Employee Retirement Income Security Act of 1974 (ERISA) holds plan administrators responsible for ensuring that plan financial statements are properly audited in accordance with generally accepted auditing standards (GAAS).
Although the employee benefit plan audit is a requirement and an important accountability mechanism, it may also help plan sponsors improve and streamline plan operations by evaluating the suitability of the plan’s internal controls over financial reporting. Good plan auditors often identify control weaknesses or plan operational errors and provide helpful recommendations for improvement.
While there are several crucial responsibilities of a plan sponsor, selecting a competent auditor is one of the most important fiduciary responsibilities. While the audit may seem like it’s simply checking a compliance box, plan sponsors should use the same care and prudence in hiring an auditor that they use when hiring any individual or entity that provide services to the plan, such as a recordkeeper, third-party administrator, or investment advisor.
The plan advisory mentions four important factors when evaluating your auditor’s qualifications: experience and professional development, identifying quality audit firms, independence, and licensing.
Experience and Professional Development
Employee benefit plan audits are very specialized, and you will want to make sure your auditor has the appropriate industry experience to carry out the audit. In other words, not all CPAs will have the specialized experience in employee benefit plans. The Department of Labor (DOL) reports that one of the most common reasons for audit deficiencies is the failure of the auditor to perform tests in areas unique to employee benefit plan audits – this frequently occurs at audit firms that do not have a specialized practice in employee benefit plans. Make sure your auditor has expertise in the following areas:
Identifying Quality Audit Firms
Firms that are members of the EBPAQC show that they are committed to providing quality employee benefit plan audits by voluntarily adhering to higher audit quality standards and higher standards of training.
The auditor’s independence from the plan and plan management is required. It’s also important for a successful audit because it enables the auditor to approach the audit with the necessary professional skepticism. These independence rules are established by the AICPA and the DOL.
Federal law requires that an auditor engaged for an employee benefit plan audit be licensed or certified as a public accountant by a state regulatory authority. You may want to verify that your auditor has the proper credentials.
The plan advisory also has a helpful section that walks through the audit proposal process. If you have questions regarding your employee benefit plan audit or would like a proposal on your audit, please contact us here.
Tags: AICPA, Department of Labor, EBPAQC, Employee Benefit Plan Audit Quality Center, Employee Benefit Plan Auditors, ERISA, GAAS, Orange County CPA Firms, Quality Audit Firms, redwitz, Redwitz Orange County, The Importance of Hiring Quality Employee Benefit Plan Auditors