2 month plan year - audit questions

[JanetM]

Am merging three DB plans into one. Each one has different year end. All three require audit.

Question the actuary and auditor are still researching - One plan is 10/31 year end. New combined plan is 12/31. So I have a 2 month plan year for the final filing. On the audit - can we do a 14 month audit - and just attach to both 5500's. You can do this on the front side when first plan year is short. Can't find any information on if you can do this on final plan year.

Time is running out - extension of full year ended 10/31/01 is coming fast.

Anyone been through this? Provide cite?

[BeckyMiller]

See ERISA reg. (see second message below). This is the short plan year rule. You can't do a 14 month report, but you can waive the audit for the short year, as long as that period is included in the audit report for the prior 12 months or the subsequent 12 months. In this case, I would do it as part of the 10/31/2001 report. So, you would end up with 10/31/2000, 10/31/2001 and 12/31/2001 statements of net assets.

[JanetM]

Than I may be stuck. The 10/31/01 year end plan was merged into a 12/31/01 year end plan effective 1/1/02. There will have to be an audit for the two month plan, since there won't be any other period that covers that plan for the two months.

Next question - the problem is the disclosure notes to financial statements. The plans are in a master trust. The master trust footnotes are in the audited financial stmts. The stmts are to be comparable - per AICPA audit guide.

Any suggestions as to the comparable period. BTW - I am the plan sponsor creating the finacial stmts - not the auditor.

[BeckyMiller]

Sorry - I gave you the wrong reg. I always get the short period and the 80 to 120 citations confused. The correct cite is 2520.104-50. This reg. provides:

.--(a) Definition of "short plan year." For purposes of this section, a short plan year is a plan year, as defined in section 3(39) of the Act, of seven or fewer months' duration, which occurs in the event that--(1) a plan is established or commences operations; (2) a plan is merged or consolidated with another plan or plans; (3) a plan is terminated; or (4) the annual date on which the plan year begins is changed.

(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.

© Accountant's examination and report. The examination by the accountant which serves as the basis for the portion of his report relating to the first of the two consecutive plan years may be conducted at the same time as the examination which serves as the basis for the portion of his report relating to the immediately following plan year. The report of the accountant shall be prepared in conformity with section 103(a)(3)(A) of the Act and regulations thereunder.

In other words - you don't need the audit to be filed for the 12 months that ended October 31, 2001. You have to file a report with the 5500 for the period ended December 31, 2001. That report includes a statement of net assets as of 10/31/2000, 10/31/2001 and 12/31/2001. It includes a statement of changes for 11/1/2000 to 10/31/2001 and 11/1/2001 through 12/31/2001.

On the 5500 for the year ended 10/31/2001 you just note that the audit report is being deferrred pursuant to this reg.

Sorry for the wrong cite.

[JanetM]

Many thanks! I really appreciate the help.