Can the assets held in participant-directed brokerage accounts be combined into a single asset on the financial statements as well as the Form 5500?

[Lori Foresz]

Hi,

Help.

Can the assets held in participant-directed brokerage accounts be combined into a single asset on the financial statements as well as the Form 5500? In other words, can the auditors use the simplified reporting method that is available to Form 5500 preparer in which all assets can be combined into "other assets" and any change placed in "other income". If anyone knows, I would like to advise the auditor to check the AICPA guide. They are questioning why we combined the assets on the Form 5500 and are telling us to break them out.

Many thanks!

[Guest Chaffee]

The auditor is incorrect in asking you to change the 5500, as it appears you are properly applying the Form 5500 reporting relief.

However, from a financial statement / GAAP basis, the auditor does not have the same level of relief.

For defined contribution plans with participant directed accounts, the only disclosure required is any individual investment > 5% of net assets (Section 3.20 of the AICPA Guide). From this standpoint, it is likely that there can be aggregate reporting on the Statement of Net Assets.

From the income statement side, GAAP does require disclosure of net appreciation by type of investment, so the auditor would need to disaggregate the brokerage accounts (Section 3.25(a) of the Guide).

Also, if this is not a limited scope audit, the auditor would need to audit each of the investments individually (7.59 of the AICPA Guide).

Hope that helps your situation.

[Lori Foresz]

Hi,

Thanks! Makes sense. Can you expand on the required disclosure of the > 5% single asset. I was unaware of this and don't want to sound stupid when the auditor calls.

I appreciate your help!

[Guest Chaffee]

Any individual investment > 5% of Net Assets needs to be disclosed either in the face of the financial statements or the footnotes. This is separate from the reporting requirement on Schedule H.

[Lori Foresz]

Hi,

We are having some trouble defining the Net Asset figure. The auditor thinks the 5% figure is based on EOY assets. For the 5500, beginning of year always seems to be the benchmark date but I realize the audit may have different requirements. Do you know? I checked the AICPA guide and it was as clear as mud. Sorry for the questions. I appreciate the help!!

[Guest Chaffee]

Not a problem.

On the audit side, I have always seen this done based on end of year values (which is different that most 5500 requirements). Most of the guidance is unclear like you said, but various pronouncements have the same 5% threshhold (FAS 35 for DBs, SOP 01-2 for H&W). If you are looking for anything to tip your decision, Paragraph 19 of SOP 01-2 indicates a H&WP should disclose investments representing 5% or more of the net assets "as of the end of the year."

Hope this helps.

[Guest jeffreykuhlman]

I work for a brokerage firm that oversees self directed brokerage accounts and we are continually running into what I would call the battle of 5500 reporting vs. audit requirements. A few years ago the Dept of Labor 5500 reporting requirements were more similiar to standarg accounting pracitice but now the 5500 reporting allows for the combing of abrokerage assets into one category. There is a good website I have found that detilas what the major difffernece are between accounting pracitice in preparing financial statementas fro companies vs. 5500 reporting requiremnts.

http://ebpaqc.aicpa.org/Resources/Defined+...ipant-Direc.htm