5500 on Accrual Basis

[Guest Tracy H]

:confused:

What happens in a situation where the 5500 is prepared on an cash basis and the audited financial statements are prepared on an accrual basis? The actual Participant Summary is cash. I realize this makes it harder, but it is acceptable? Also, we have just switched from Accrual to Cash....on the 5500. Any help would be greatly appreciated.

[Guest Emiliano]

If the Form 5500 Schedule H differs from the audited financial statements, the financial statements are required by GAAP to include, in a footnote, a reconciliation to the Form 5500.

Regarding changing from accrual basis to cash basis on the Form 5500, the instructions state that you may use cash, modified cash, or accrual basis as long as you use one method consistently.

[Guest James Osterhaus]

Emiliano

What if you have been doing dailey valued plans on an accrual basis for 2-3 years but now wish to start doing them on a cash basis? What, if anything needs to be done to effect the change?

Thank you

James

[Guest Emiliano]

I actually spoke to someone at DOL about this.

The financial statements beginning of year balances would have to be adjusted to reflect the new accounting method. A footnote to the financial statements must reconcile the financial statements to the Form 5500.

On the 5500, although the instructions state that the chosen accounting method must be used consistently, the DOL allows you to change it. DON'T change the beginning of year balances. Include, in other income, the effect of the change in accounting method.

[Guest James Osterhaus]

Thanks Emiliano, You've been very helpful.

[Guest JBREGIT]

I AM INTERESTED IN THIS VERY TOPIC ... IS THERE ANYTHING YOU ARE SUPPOSED TO DO ON THE 55O0 TO INDICATE YOU AE CHANGING FROM ACCRUAL TO CASH. I CAN NOT SEE WHERE SUCH AN ELECTION CAN BE ENTERED. IT SEEMS THAT YOU CAN JUST MAKE THE CHANGE AND ADJUST BALANCES ON THE RETURN AS NEEDED. WHAT RESTRICTION ARE THERE IF SPONSOR WANTED TO SWITCH BACK TO ACCRUAL ??

[Guest James Osterhaus]

You can add an attachment to the form 5500 which shows the plan name, sponsor EIN, 3-digit plan number, the form and year to which the attachment is attached, and the line on the form being referenced. You can explain the change in approach to the DOL. Your attachment would be automatically scanned into the DOL records.