Читать книгу Auditing Employee Benefit Plans - Josie Hammond - Страница 62

Employee benefit plan investments may consist of marketable securities (such as stocks, bonds, or shares of registered investment companies), investment or insurance contracts, individual or pooled separate accounts with insurance companies, common or collective trust funds maintained by banks or similar institutions, and other investments (such as limited partnerships, real estate, nonmarketable securities, or leases) or derivative instruments (such as options and futures).

A defined benefit plan should report investments at fair value, except for contracts with insurance companies that incorporate mortality (that is, death) or morbidity risk (that is, disease or disability), which may be reported at either fair value or contract value in the same manner as in the plan’s annual report with certain governmental agencies pursuant to ERISA.

Defined contribution (pension or welfare) plans should report all investments at fair value, except for direct investments in fully benefit responsive contracts, which are to be reported at contract value. Contract value is the amount participants normally would receive if they were to initiate permitted withdrawals under the terms of the underlying plan.

FASB ASC 820 defines fair value, sets out a framework for measuring fair value, and requires certain disclosures about fair value measurements.

Help desk. The area of fair value continues to evolve. Auditors should monitor FASB developments regarding fair value measurements at https://asc.fasb.org/home.

Form 5500 also requires the current value of investments to be reported and indicates that current value represents fair market value where available or as determined in good faith under the terms of the plan by a trustee or a named fiduciary. Even though the current value of assets must be determined each year, there is no requirement that the assets be valued annually by an independent appraiser (except for certain nonpublicly traded securities held in employee stock ownership plans). However, Form 5500 requires disclosure of assets whose values were not readily determinable on an established market or which were not valued by an independent third-party appraisal. Normally the auditor’s primary concern is for overstatement of an asset, however, in a defined contribution benefit plan, understatement of value is as much of a concern since a withdrawing participant could receive a lesser value than he or she would be entitled to.

A plan’s accounting policies should include a description of the valuation techniques and inputs used to measure the fair value less costs to sell, if significant, of investments (as required by FASB ASC 820-10-50) and a description of the methods and significant assumptions used to measure the reported value of insurance contracts. However, defined benefit pension plans, defined contribution pension plans, and health and welfare benefit plans are exempt from the requirements in item (a) of FASB ASC 820-10-50-2B to disaggregate assets by nature, characteristics, and risk. The disclosures of information by classes of assets required by FASB ASC 820-10-50 should be provided by general type of plan assets consistent with FASB ASC 960-325-45-2, FASB ASC 962-325-45-5, and FASB ASC 965-325-45-2.

The breakdown of investments by general type should be presented in the statement of net assets available for benefits or in the notes to the financial statements. Common investment types include registered investment companies (for example, mutual funds), government securities, common- collective trusts, pooled separate accounts, short-term securities, corporate bonds, common stocks, mortgages or other loans (excluding loans to participants), and real estate. The presentation of investments should indicate whether fair value has been measured by quoted market price or otherwise determined.

Participant-directed investments may be reported as a single-line item on the statement of net assets available for benefits. In addition, if any of those investments are nonparticipant-directed, they should be separately identified. The plan should disclose the detail of net assets and significant components of related changes for nonparticipant-directed investment programs, in either the financial statements or accompanying notes.

Help desk. The instructions to Form 5500 permit certain self-directed investments, to be reported in aggregate as a single line item on Form 5500, Schedule H and related schedule of assets. Though self-directed investments may be shown as a single line item in the GAAP financials if the underlying investments belong in different levels, those amounts would need to be broken out into the appropriate levels for the purposes of the fair value hierarchy disclosures. These differences in reporting may create issues for auditors when requesting brokerage window investment information for these accounts. Therefore, it is important for plan administrators and service organizations to maintain detailed records for financial reporting.

Purchases and sales of securities should generally be recorded on the trade date. Dividend income should be recorded on the ex-dividend date. Interest income should be recorded on the accrual basis.

Net appreciation or depreciation includes realized gains and losses on investments that were purchased and sold during the period, as well as unrealized appreciation or depreciation of the investments held at year end. Investment income, such as interest or dividends, should be separately reported on the statement of changes in net assets available for benefits. There is no requirement to disclose the net appreciation or depreciation in fair value of investments by general type.