Corporate Audit versus Plan Audit

[RCK]

Plan sponsor is a publicly traded, Fortune 500 company with corporate audit performed by a big 4 company. There are roughly a dozen plans that require an audit, including four that hold company stock in employee directed accounts and therefore require full scope audits. Each year, the plan audits and corporate audit have been done by the same firm. (That is, if in 2002 A did the corporate audit, A also did the plan audits. It does not mean that A has done the plan audits every year.)

Question: Is there a downside to splitting the providers so that A does the corporate audit but B (a smaller and cheaper regional firm) does the plan audits?

Thanks for your thoughts.

RCK

[E as in ERISA]

I presume the full scope audits are done because the companies are filing 11-Ks? My understanding is that sometimes there is a preference by certain parties (I'm not always quite sure who is raising the issue -- but sometimes investment bankers, analysts, etc.) that all SEC filings of a company are done by Big 4 firms and possibly other national or regional firms. But that doesn't mean that it has to be the same firm.... In today's environment, might be a good idea to have a different firm doing the plan audit, so they're not afraid to put company stock through the full analysis for "related party transactions" and question whether there have any situations in which there may have been any influence by company executives on the plan participants to purchase company stock. But then again, are there any auditors who are actually reviewing related party transactions like they are supposed to?

[RCK]

Katherine,

Thanks for your response.

Yes, there are full scope audits because of an 11-K filing. Our treasury department is currently taking a survey of those interested parties to see if they care if the plan audits are done by a different firm.

RCK

[Kirk Maldonado]

I've worked on many plans filing Form 11-Ks over the years, and nobody has ever voiced a desire for the plan audit to be done by the same firm that does the corporate audit.

I don't see any compelling reason to use the same firm. However, the smaller accounting firms may not be as familiar with the Form 11-K, because they may not work with as many plans that need to file a Form 11-K. On the other hand, I don't see this (experience issue) as being something that should be determinative in deciding which firm to use.

My experience is that the mid to large size regional accounting firms tend to see audits of retirement plans as a vehicle to get in the door on larger clients. Thus, they tend to have the same people that do these audits every year. Because of their cumulative experience and the desire to use this as a platform for getting more business, I have a preference for using them.

My experience (over more than 20 years) is that the people assigned to do the plan audits for the big four accounting firms are always doing it for the first time. This is so that they can have the experience of having done this. Accordingly, they don't have the same depth of experience as the people in the regional firms that have decided to making auditing plans a permanent part of their practice.

[RCK]

Thanks for the responses.

The rumor through our finance department is that there might be a Sarbanes Oxley driven problem. But I have not gotten clarification yet.

RCK

[BeckyMiller]

As a partner in the kind of mid-sized firms that Kirk likes, I have to admit to a fondness for doing benefit plan audits. When approached as a technical specialty, rather than a fungible commodity, they can be every bit as challenging as a corporate audit and offer all sorts of fun client service opportunities.

Having said that, I have to admit, however, that there may be a reason for using the same audit firm that does the sponsor's work for the benefit plan audits. This is the participant testing. An auditor, whether doing a full scope or a limited scope audit, is required to test participant data - compensation, dates, eligibility, etc. See Chapter 10 of the AICPA Employee Plans Audit Guide. The firm that does the sponsor's work can do this testing, internal control documentation, etc. at the same time it is testing the payroll system as part of the general sponsor audit. When you hire a different audit firm, this work needs to be duplicated by them. Thus, when the sponsor only has one or two plans, there may not be much cost savings. Where the sponsor offers half a dozen or more benefit plans, you may go back to realizing a savings.