Esop 5500 Audit requirements inquiry

[Tax Cowboy]

Group:
Plan sponsor adopted an esop in Nov 2021.
I'm told they have 200 participants.

I note they fall into a large plan.
Q: I've read that since the adoption date falls late in year (for short year) they don't have to file an independent audit until the following year (12/31/22 y/e)? 
I couldn't find a cite on the website where I found this information.

Is this accurate? Anyone have a cite they'd be willing to share? 

Q: How is it decided if the audit is performed as limited scope? Does the IQPA? Plan sponsor? 

Thoughts and comments appreciated.
Thank you 

[C. B. Zeller]

29 CFR § 2520.104-50

Quote

(b) Deferral of accountant's report. A plan administrator is not required to include the report of an independent qualified public accountant in the annual report for the first of two consecutive plan years, one of which is a short plan year, provided that the following conditions are satisfied:

(1) The annual report for the first of the two consecutive plan years shall include:

(i) Financial statements and accompanying schedules prepared in conformity with the requirements of section 103(b) of the Act and regulations promulgated thereunder;

(ii) An explanation why one of the two plan years is of seven or fewer months' duration; and

(iii) A statement that the annual report for the immediately following plan year will include a report of an independent qualified public accountant with respect to the financial statements and accompanying schedules for both of the two plan years.

(2) The annual report for the second of the two consecutive plan years shall include:

(i) Financial statements and accompanying schedules prepared in conformity with section 103(b) of the Act and regulations promulgated thereunder with respect to both plan years;

(ii) A report of an independent qualified public accountant with respect to the financial statements and accompanying schedules for both plan years; and

(iii) A statement identifying any material differences between the unaudited financial information relating to, and contained in the annual report for, the first of the two consecutive plan years and the audited financial information relating to that plan year contained in the annual report for the immediately following plan year.

 

[Lou S.]

But be careful, is it a short Plan Year say November 1 - December 31, or was it adopted in November retroactive to January 1 and you have a full January 1 - December 31 Plan year?

[Bob the Swimmer]

CB Zeller is right--it's the old two-for-one rule; but remember it's still two separate audits that can take place at the same time---saves the client some time and money

in my experience.

[Tax Cowboy]

Thank you for responses. Very helpful. I've read that the plan administrator can choose a 'Limited Scope' audit. Is this true? Or does the independent auditor decide whether it's a limited in scope audit? Thank you 

[Bri]

I believe limited scope refers to the CPA's ability to rely on previously prepared financial statements regarding the underlying investments (like if everything's in a group annuity contract with John Hancock, for instance).  Might have trouble applying that to an ESOP.

[Peter Gulia]

When a plan’s administrator engages an independent qualified public accountant, the administrator decides whether to engage the IQPA for a full-scope examination, or to limit the IQPA’s scope by providing that the IQPA need not examine information certified by a regulated bank or insurance company.

29 C.F.R. § 2520.103-8 https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/subpart-C/section-2520.103-8#:~:text=ECFR%20CONTENT-,%C2%A7%202520.103%2D8,-Limitation%20on%20scope

Unless the employer securities are publicly and regularly traded on a national securities exchange, it’s unlikely a bank will certify enough information about the employer securities.

If the ESOP has bank-custodied investments beyond employer securities, an administrator might (if the rule’s conditions are met) limit an independent accountant’s scope regarding those other assets.