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Josie Hammond. Auditing Employee Benefit Plans
Table of Contents
Guide
Pages
AUDITING EMPLOYEE BENEFIT PLANS
Chapter 1 Employee Benefit Basics. Learning objectives
Introduction
Plan as defined by ERISA
Welfare plans
Pension plans
Knowledge check
Plans as defined by GAAP. Defined contribution and defined benefit
Exhibit 1-1 Defined contribution and defined benefit
Popular plan types. Pension plans. Defined contribution plans. Profit-sharing plans
Stock bonus plans
401(k) plans
403(b) plans
457 plans
Employee stock ownership plans
Money purchase pension plans
Defined benefit plans. Traditional defined benefit plans
Cash balance plans
Welfare benefit plans
Unfunded, insured, or funded
401(h) accounts
Cafeteria plans
Knowledge check
Tax compliance elements
Formation
Eligibility
Nondiscrimination
Vesting
Example 1-1
Example 1-2
Distributions
Plan termination or merger
Relief for violation
Knowledge check
Key plan operational concepts. Fiduciary conduct
Direct filing entities
Single, multi-, and multiple employer plans
Unrelated business income tax
Understanding the plan under audit
Exhibit 1-2 Unique audit considerations by plan type
Exhibit 1-3 Tax considerations in an employee benefit plan audit
Exhibit 1-4
Knowledge check
Notes
Chapter 2 Accounting and Reporting Standards. Learning objectives
Introduction
Knowledge check
Applicable guidance
FASB ASC 960, plan accounting: Defined benefit pension plans
FASB ASC 962, plan accounting: Defined contribution pension plans
FASB ASC 965, Plan accounting: Health & welfare benefit plans
Fair value measurements. FASB ASC 820, fair value measurement
FASB ASC 825, financial instruments
Knowledge check
Financial statements
Knowledge check
Investment valuation and income recognition
Accounting and reporting for investment contracts
Accounting and reporting for contributions
EBSA enforcement initiative
Notes receivable from participants (participant loans)
Operating assets
Accrued liabilities
Accounting for uncertainty in income taxes
Knowledge check
Plan mergers
Terminating plans
Going concern
Subsequent events
Knowledge check
Recent developments
Financial instruments
Definition of nonpublic entity
Plan accounting: Master trust reporting—FASB ASU No. 2017-06
Codification Improvements – FASB ASU No. 2018-09
Fair Value Measurement - FASB ASU No. 2018-13
Chapter 3 Reporting and Audit Requirements. Learning objectives
Introduction
Audit requirement
Understanding the plan under audit: Plan versus trust
Exemptions: Audit. General exemption
Small plans
80-120 participant rule
Unfunded or insured plans
ERISA 103(a)(3)(C) limited scope exemption
Knowledge check
Regulatory reporting and disclosure requirements for pension and welfare plans
Exemptions: Filing
Deadlines and extensions
Short plan years
The audit guide
ERISA versus GAAP
Knowledge check
Audit considerations
Independence
Common audit concerns or deficiencies
Professional ethics violations
EBSA inspection programs
AICPA employee benefit plan audit quality center
Issues related to participant data
Issues related to limited-scope audits
Issues related to investments
Issues related to supplemental schedules
Miscellaneous issues. Documentation
Planning and internal controls
Sample sizes
Knowledge check
Using the work of internal auditors
Recent developments
Note
Chapter 4 Audit Planning. Learning objectives
Introduction
Key parties
Knowledge check
Client acceptance. Client and engagement team evaluation
Engagement letter
HIPAA considerations
Knowledge check
Scope and timing
Nature and scope
Timing
Knowledge check
Gaining an understanding of a plan, its environment, and its internal controls
Understanding a plan (the entity)
Understanding a plan’s environment
Understanding a plan’s internal controls
Internal controls at the plan sponsor
Internal controls at service centers
Knowledge check
Risk assessment
Engagement risk
Fraud risk
Audit risk
Identification of significant risks
Accounting estimates
Audit team discussion
Materiality
Design further audit procedures in response to assessed risks
Knowledge check
Audit documentation
Analytical procedures
All plans
Defined benefit pension plans
Health and welfare plans
Initial audit procedures
Chapter 5 401(k) and Other Defined Contribution Pension Plans (Except ESOPs) Learning objectives
Introduction
Determination of benefit amount
Net assets available for benefits
Changes in net assets available for benefits
Investments
Investment types and measurement or valuation
Auditing investments in a defined contribution pension plan
Auditing of unique types of investments. Discretionary trust
Common collective trusts
Mutual funds
Master trusts
Contracts with insurance entities
Derivatives and hedging activities
Real estate
Limited partnerships
Nonpublicly traded stock and employer securities
Knowledge check
Contributions receivable
Auditing contributions receivable
Notes receivable from participants
Knowledge check
Other operating assets
Cash
Accrued liabilities
Investment income
Knowledge check
Contribution revenue
Auditing contributions received
Knowledge check
Participant data and participant accounts
Auditing participant data
Auditing participant accounts
Knowledge check
Participant-directed versus self-directed
Benefit payments
Auditing benefit payments
Present and future ability to pay benefits
Expenses
Auditing plan expenses
Knowledge check
Financial statement presentation and required disclosures
403(b) plans
Case study—participant accounts and allocations
Debrief
Information needed to begin the planning process:
What could go wrong?
Note
Chapter 6 Defined Benefit Pension Plans. Learning objectives
Introduction
Determination of benefit amount
Financial statements
Net assets available for benefits
Changes in net assets available for benefits
Accumulated plan benefits
Changes in accumulated plan benefits
Knowledge check
Investments and investment income
Knowledge check
401(h) accounts
Knowledge check
Funding
Knowledge check
Participant data and plan obligations
Benefit payments
Expenses
Financial reporting and disclosure
Plan transfers (plan mergers, spin-offs, and other transfers)
Terminations
Example 6-1 Plan termination
Knowledge check
Note
Chapter 7 Health and Welfare Plans. Learning objectives
Introduction
Defined contribution versus defined benefit
Challenges in auditing a health and welfare plan. Plan versus trust
Plan document
Claims processor’s understanding of HIPAA
Lack of SOC 1® reports for claims processor
Knowledge check
Components of the financial statements of a welfare benefit plan
Statement of net assets available for benefits
Investments
Cash
Statement of changes in net assets available for benefits
Contribution income
Benefits paid
Administrative expenses
Statement of plan benefit obligations
Claims payable
Postemployment benefit obligations and postretirement benefit obligations
Statement of changes in plan benefit obligations
Knowledge check
Unique features of a health and welfare benefit plan
Rebates receivable
Stop-loss refunds receivable
Postemployment benefit obligations
COBRA contributions
Retiree contributions
Premium contributions
Claims paid
Claims payable
Incurred but not reported (IBNR) claims
Accumulation of eligibility credits
Participant data
Medicare rebates
Knowledge check
Disclosure requirements. Description of the plan
Accounting policies
Use of estimates
Investment valuation
Postretirement benefits
Other benefits
Investment transactions
Other disclosures
Medicare subsidy Act
Multiemployer plans
Single employer plans
Reporting requirements
Chapter 8 Other Auditing Considerations. Learning objectives
Introduction
Related party and party in interest transactions
Audit procedures
Example 8-1 Party in interest transactions — both exempt and nonexempt
Financial reporting
Knowledge check
Prohibited transactions
Untimely deposits of employee deferrals
Knowledge check
ERISA supplemental schedules
Example 8-2 Typical supplemental schedules
Effects of information omitted from ERISA schedules
Knowledge check
Form 5500 information consistency with financial statements
Tax status
Knowledge check
Auditing corrective actions
Certified information
Investment confirmations
Knowledge check
Going concern
Knowledge check
Chapter 9 Wrapping Up. Learning objectives
Introduction
Commitments and contingencies
Knowledge check
Subsequent events
Knowledge check
Representation letter from management
Knowledge check
Communication of internal control-related matters identified in an audit. AU-C section 265, communicating internal control related matters identified in an audit (AICPA, professional standards)
Form of communication
Knowledge check
Management advice letter considerations
Communication with those charged with governance
Significant findings from the audit
Knowledge check
Appendix A ILLUSTRATIVE FINANCIAL STATEMENTS AND DISCLOSURES FOR A DEFINED CONTRIBUTION PLAN WITH PARTICIPANT-DIRECTED AND NONPARTICIPANT-DIRECTED INVESTMENT PROGRAMS
Exhibit C-1
Exhibit C-2
Exhibit C-3. XYZ Company 401(k) plan notes to financial statements. A. Description of plan
B. Summary of accounting policies. Basis of accounting
Use of estimates
Investment valuation and income recognition
Notes receivable from participants
Excess contributions payable
Payment of benefits
Expenses
Subsequent Events
C. Fair value measurements
D. Nonparticipant-directed investments
E. Group annuity contract with National Insurance Company
F. Rollovers contributions
G. Related-party transactions and party in interest transactions
H. Plan termination
I. Tax status
J. Risks and uncertainties
K. Reconciliation of financial statements to Form 5500
Appendix B ILLUSTRATIVE FINANCIAL STATEMENTS AND DISCLOSURES FOR A DEFINED BENEFIT PLAN ASSUMING AN END-OF-YEAR AND BEGINNING-OF-YEAR BENEFIT INFORMATION DATES
I. Illustrations Assuming an End-of-Year Benefit Information Date. Exhibit E-1. C&H Company Pension Plan Statements of Net Assets Available for Benefits
Exhibit E-2. C&H Company Pension Plan Statement of Changes in Net Assets Available for Benefits
Exhibit E-3
C&H Company Pension Plan Statements of Accumulated Plan Benefits
Exhibit E-4. C&H Company Pension Plan Statement of Changes in Accumulated Plan Benefits
II. Illustrations Assuming a Beginning-of-Year Benefit Information Date. Exhibit E-5. Note
C&H Company Pension Plan Statements of Changes in Net Assets Available for Benefits (If a beginning-of-year benefit information date is selected)
Exhibit E-6. C&H Company Pension Plan Statement of Accumulated Plan Benefits (If a beginning-of-year benefit information date is selected)
Exhibit E-7. C&H Company Pension Plan Statement of Changes in Accumulated Plan Benefits (If a beginning-of-year benefit information date is selected)
Note
Exhibit E-8. C&H Company Pension Plan Notes to Financial Statements5. A. Description of Plan
B. Summary of Accounting Policies
C. Actuarial Present Value of Accumulated Plan Benefits
D. Plan Termination
E. Fair Value Measurements
F. Interest in C&H Master Trust
Note
Note
G. Guaranteed Investment Contract With National Insurance Company
H. Derivative Instruments
I. Master Netting Agreements
J. Securities Lending10
K. Risks and Uncertainties
L. Plan Amendment
M. Tax Status
N. Related-Party and Party in Interest Transactions
O. 401 (h) Account
P. Reconciliation of Financial Statements to Form 550012
Q. Subsequent Events
I. Illustrations Assuming an End-of-Year Benefit Information Date. Exhibit E-1. C&H Company Pension Plan Statements of Net Assets Available for Benefits
Exhibit E-2. C&H Company Pension Plan Statement of Changes in Net Assets Available for Benefits
Exhibit E-3. Note
C&H Company Pension Plan Statements of Accumulated Plan Benefits
Exhibit E-4. C&H Company Pension Plan Statement of Changes in Accumulated Plan Benefits
II. Illustrations Assuming a Beginning-of-Year Benefit Information Date. Exhibit E-5. Note
C&H Company Pension Plan Statements of Changes in Net Assets Available for Benefits (If a beginning-of-year benefit information date is selected)
Exhibit E-6. C&H Company Pension Plan Statement of Accumulated Plan Benefits (If a beginning-of-year benefit information date is selected)
Exhibit E-7. C&H Company Pension Plan Statement of Changes in Accumulated Plan Benefits (If a beginning-of-year benefit information date is selected)
Note
Exhibit E-8. C&H Company Pension Plan. Notes to Financial Statements17. A. Description of Plan
B. Summary of Accounting Policies
C. Actuarial Present Value of Accumulated Plan Benefits
D. Plan Termination
E. Fair Value Measurements
Transfers Between Levels
Changes in Fair Value of Level 3 Assets and Related Gains and Losses
Quantitative Information about Significant Unobservable Inputs Used in Level 3 Fair Value Measurements
Fair Value of Investments that Calculate Net Asset Value
F. Interest in C&H Master Trust
Note
Note
G. Guaranteed Investment Contract With National Insurance Company
H. Derivative Instruments
I. Master Netting Agreements
J. Securities Lending22
K. Risks and Uncertainties
L. Plan Amendment
M. Tax Status
N. Related-Party and Party in Interest Transactions
O. 401 (h) Account
P. Reconciliation of Financial Statements to Form 550024
Q. Subsequent Events
Notes
Appendix C ILLUSTRATIVE FINANCIAL STATEMENTS AND DISCLOSURES FOR A HEALTH AND WELFARE PLAN
Exhibit F-1. Allied Industries Health Care Benefit Plan Statements of Net Assets Available for Benefits December 31, 20X1 and 20X0
Exhibit F-2. Allied Industries Health Care Benefit Plan Statement of Changes in Net Assets Available for Benefits Year Ended December 31, 20X1
Exhibit F-3. Allied Industries Health Care Benefit Plan Statements of Benefit Obligations December 31, 20X1 and 20X0
Exhibit F-4. Allied Industries Health Care Benefit Plan Statement of Changes in Benefit Obligations Year Ended December 31, 20X1
Exhibit F-5. Allied Industries Health Care Benefit Plan Notes to Financial Statements. A. Description of Plan
B. Summary of Accounting Policies
C. Postretirement and Postemployment Benefit Obligations
D. Claims Incurred but not Reported
E. Certified Investments
F. Fair Value Measurements
G. Administrative Expenses
H. Tax Status
Note
I. Termination of the Plan
J. 401(H) Account
Note
K. Reconciliation of Financial Statements to Form 5500
L. Related-Party Transactions
M. Risks and Uncertainties
Exhibit F-1. Allied Industries Health Care Benefit Plan Statements of Net Assets Available for Benefits December 31, 20X1 and 20X0
Exhibit F-2. Allied Industries Health Care Benefit Plan Statement of Changes in Net Assets Available for Benefits Year Ended December 31, 20X1
Exhibit F-3. Allied Industries Health Care Benefit Plan Statements of Benefit Obligations December 31, 20X1 and 20X0
Exhibit F-4. Allied Industries Health Care Benefit Plan Statement of Changes in Benefit Obligations Year Ended December 31, 20X1
Exhibit F-5. Allied Industries Health Care Benefit Plan Notes to Financial Statements. A. Description of Plan
B. Summary of Accounting Policies
C. Postretirement and Postemployment Benefit Obligations
D. Claims Incurred but not Reported
E. Certified Investments
F. Fair Value Measurements
G. Administrative Expenses
H. Tax Status
Note
I. Termination of the Plan
J. 401(H) Account
Net Assets Available for Postretirement Health and Welfare Benefits in 401(h) Account
Changes in Net Assets in 401(h) Account
K. Reconciliation of Financial Statements to Form 5500
L. Related-Party Transactions
M. Risks and Uncertainties
Notes
Appendix D ILLUSTRATIVE SUPPLEMENTAL SCHEDULE OF ASSETS
Notes
Appendix E ILLUSTRATIVE SUPPLEMENTAL SCHEDULE OF REPORTABLE TRANSACTIONS
Appendix F ILLUSTRATIVE EXAMPLE OF AN ENGAGEMENT LETTER FOR A 401(K) EMPLOYEE BENEFIT PLAN AUDIT ENGAGEMENT
Exhibit 2-5
Note
Notes
Appendix G SMALL PENSION PLAN AUDIT WAIVER DECISION TREE
Exhibit 2-4 Small pension plan audit waiver (SPPAW) summary (applies to plan years beginning on or after April 18, 2001)
Appendix H REPORT MODIFICATIONS CHART
Notes
Appendix I PENSION PLAN AUDIT DECISION TREE
Exhibit 2-21 Pension audit plan decision tree
Note
Appendix J ILLUSTRATIVE SUPPLEMENTAL SCHEDULE OF DELINQUENT PARTICIPANT CONTRIBUTIONS
Employee Benefit Plans Glossary
Accounting and Auditing Glossary
Index
AUDITING EMPLOYEE BENEFIT PLANS
Solutions. Chapter 1. Knowledge check solutions
Chapter 2. Knowledge check solutions
Chapter 3. Knowledge check solutions
Chapter 4. Knowledge check solutions
Chapter 5. Knowledge check solutions
Chapter 6. Knowledge check solutions
Chapter 7. Knowledge check solutions
Chapter 8. Knowledge check solutions
Chapter 9. Knowledge check solutions
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