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This Audit and Accounting Guide provides the latest information on accounting and auditing issues affecting all types of employee benefit plans. Updated with conforming changes as of March 1, 2008, it includes guidance in planning and performing audits under the risk assessment standards (SAS Nos. 104-111). It also provides additional guidance on the auditor’s responsibilities as set forth in SAS Nos. 112-114, including identifying and reporting internal control deficiencies, understanding the link between the auditor’s consideration of fraud and the auditor’s assessment of risk, dating of the management representation letter, and the auditor’s communications with those charged with governance.
The guide summarizes applicable requirements and practices, and delivers "how-to" advice to prepare, audit, and report on financial statements of employee benefit plans. This guide covers the following new accounting pronouncements:
For a topical listing of subject matter by chapter, click on the Table of Contents tab.
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Generally accepted auditing standards (GAAS) and accounting principles are applicable in general to employee benefit plans.* The broad application of those standards and principles is not discussed here. Rather, the guide focuses on the special problems in auditing and reporting on financial statements that are unique to employee benefit plans.
The guide contains certain suggested auditing procedures, but detailed internal control questionnaires and audit programs are not included. The nature, timing, and extent of auditing procedures are a matter of professional judgment and will vary depending on the size, organizational structure, internal control, and other factors in a specific engagement.
The guide also includes information regarding statutory rules and regulations applicable to employee benefit plans and illustrations of plan financial statements and auditors' reports. The Department of Labor, Employee Benefits Security Administration strongly encourages the use of this guide in meeting the requirements contained in ERISA section 103 that a plan have an audit conducted in accordance with GAAS.
The guidance in this audit guide is in certain respects more detailed than that generally included in other AICPA audit guides. To facilitate reference, paragraphs have been numbered.
Chapters 3-4 of this guide describe the specialized accounting principles and practices for defined contribution plans and employee health and welfare benefit plans, respectively. The accounting guidance in those chapters is consistent with the accounting and reporting standards in FASB Statement No. 35 to the extent that this is appropriate.
In August 1992, Statement of Position (SOP) 92-6, Accounting and Reporting by Health and Welfare Benefit Plans (AICPA, Technical Practice Aids, ACC sec. 10,530), was issued, which clarifies several accounting and reporting requirements set forth in chapter 4 and updates the guide to incorporate new statements issued by the FASB. SOP 92-6 has been amended by SOP 99-3, Accounting for and Reporting of Certain Defined Contribution Plan Investments and Other Disclosure Matters (AICPA, Technical Practice Aids, ACC sec. 10,790), SOP 01-2, Accounting and Reporting by Health and Welfare Benefit Plans (AICPA, Technical Practice Aids, ACC sec. 10,830), and FASB Staff Position (FSP) AAG INV-1 and SOP 94-4-1, Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans.
In September 1994, SOP 94-4, Reporting of Investment Contracts Held by Health and Welfare Benefit Plans and Defined-Contribution Pension Plan (AICPA, Technical Practice Aids, ACC sec. 10,620), and Practice Bulletin (PB) No. 12, Reporting Separate Investment Fund Option Information of Defined- Contribution Pension Plans (AICPA, Technical Practice Aids), were issued. SOP 94-4 specifies the accounting for health and welfare benefit plans and defined contribution plans for investment contracts issued by either an insurance enterprise or other entity. PB 12 provided clarification of the reporting requirements in paragraph 3.52i of the guide. PB No. 12 has been superseded. In December 2005, FSP AAG INV-1 and SOP 94-4-1 amended SOP 94-4. These amendments have been incorporated into chapters 3-4 of the guide.
In July 1999, SOP 99-2, Accounting for and Reporting of Postretirement Medical Benefit (401(h)) Features of Defined Benefit Pension Plans (AICPA, Technical Practice Aids, ACC sec. 10,780), was issued. SOP 99-2 amends chapters 2 and 4 of the guide and specifies the accounting for and disclosure of 401(h) features of defined benefit pension plans, by both defined benefit pension plans and health and welfare benefit plans.
SOP 99-3 was issued in September 1999, and amends chapters 3-4 of the guide, SOP 94-4, and SOP 92-6. SOP 99-3 simplifies disclosures for certain investments and supersedes AICPA Practice Bulletin 12 (PB 12).
In April 2001, SOP 01-2 was issued. SOP 01-2 amends chapter 4 of the guide and SOP 92-6. SOP 01-2 specifies the presentation requirements for benefit obligations information, requires disclosure of information about retirees' relative share of the plan's estimated cost of providing postretirement benefits, clarifies the measurement date for benefit obligations, establishes standards of financial accounting and reporting for postemployment benefits provided by health and welfare benefit plans, requires disclosure of the discount rate used for measuring the plan's obligation for postemployment benefits, and requires the identification of investments representing 5 percent or more of the net assets available for benefits.
FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. FASB Statement No. 133, as amended, says that a contract that is accounted for under either paragraph 4 of FASB Statement No. 110, or paragraph 12 of FASB Statement No. 35, as amended, is not subject to FASB Statement No. 133. Those exceptions apply only to the party that accounts for the contract under FASB Statement Nos. 35 and 110. FASB Statement No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, addresses a limited number of issues causing implementation difficulties for numerous entities that apply FASB Statement No. 133.
Definition of an Issuer
The Act states that the term issuer means an issuer (as defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c)), the securities of which are registered under section 12 of that Act (15 U.S.C. 78l), or that is required to file reports under section 15(d) (15 U.S.C. 78o(d)), or that files or has filed a registration statement that has not yet become effective under the Securities Act of 1933 (15 U.S.C. 77a et seq.), and that it has not withdrawn.
Issuers, as defined by the Act, and other entities when prescribed by the rules of the SEC (collectively referred to in this guide as issuers or issuer) and their public accounting firms (who must be registered with the PCAOB) are subject to the provisions of the Act, implementing SEC regulations, and the rules and standards of the PCAOB, as appropriate.
Non issuers are those entities not subject to the Act or the rules of the SEC.
For those entities not subject to the Act or the rules of the SEC, the preparation and issuance of audit reports remain governed by GAAS as issued by the ASB.
Auditing Standard No. 5 is principles-based and is designed to increase the likelihood that material weaknesses in internal control will be found before they result in material misstatement of a company's financial statements and, at the same time, eliminate procedures that are unnecessary. It focuses the auditor on the procedures necessary to perform a high quality audit and makes the audit scalable so it can change to fit the size and complexity of any company. Readers should refer to the PCAOB Web site at www.pcaob.org for more information.
* Subject to the Securities and Exchange Commission (SEC) oversight, Section 103 of the Sarbanes-Oxley Act (Act) authorizes the Public Company Accounting Oversight Board (PCAOB) to establish auditing and related attestation, quality control, ethics, and independence standards to be used by registered public accounting firms in the preparation and issuance of audit reports as required by the Act or the rules of the Commission. Accordingly, public accounting firms registered with the PCAOB are required to adhere to all PCAOB standards in the audits of issuers, as defined by the Act and other entities when prescribed by the rules of the Commission. Generally, plans that are required to file Form 11-K would be considered issuers.
1 All references made in the guide to generally accepted accounting principles (GAAP) relate to accounting principles generally accepted in the United States of America.
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