Too easy or too difficult?

[Guest Emiman]

Hi! I posted this message on the Form 5500 topic board but I did not receive a response - my assumption is either I am asking a really basic question, a difficult question or one that has a touch of gray so I thought I would try this board. My question was:

I am aware that a limited scope audit can be performed if the investments are with a bank, insurance company or that is a 103-12 investment.

What I am not as clear on is if a bank, trust company or insurance company issues a certification statement on the investments that a limited scope audit can also be performed - is this regardless of the assets or do the assets have to be of the type stated in the first paragraph?

For example, a plan with 150 participants, assets are all invested in mutual funds. Plan has a directed Trustee listed in their plan document as "ABC Trust Co.". If ABC Trust Co. completed certification statements of the assets for the auditor, would the plan be able to have a limited scope audit?

I appreciate the assistance.

[Archimage]

If the assets are truly custodied by the trust company, then you can do a limited scope audit.

[Guest KFM]

But you can not do a limited scope audit if the plan has to file a Form 11-K each year. (Fortunately, a tax-exempt employer would never have to file a Form 11-K, which is a filing with the SEC.)

[Belgarath]

Ok, then what, if any, certification does the auditing company need from the Insurance/Bank/Trust company? Is there some general statement/form/certicication? I've heard of an SAS 70, but I don't really know what it is, or if it is really required by the auditing company. My impression was that if the SAS 70 (whatever it is) was done, that it made the audit easier if a limited scope audit was not otherwise available, but I'm way into the realm of pure guesswork here.

[Guest LVanSteeter]

SAS 70 is an audit of the company's proceedures and policies done by an independent auditor. Think full scope audit on the trustee and its processing. You can rely on the facts presented in the SAS 70. If I were auditing a plan, I would want one. All of the major companies produce one.

At my company, we send the SAS 70 out with the annual statements and include a trustee certification for those plans we are trustee for. This gives the auditor everything they need to work through a limited scope audit.

[Belgarath]

Ok, thanks for the response. I'd like to delve into this a bit further, due to a question that was asked - the answer to which I have no clue. We're just a TPA, not a Trustee.

The plan has, say, 150 participants. If all the assets are with a registered Trust company, bank, insurance company - can the auditor perform a limited scope audit? The second question is then, apparently, WILL the auditing company perform a limited scope audit if there's no SAS 70?

What I think I'm hearing is that the SAS 70 isn't necessarily a legal requirement, but some auditing firms would still require it in order to do a limited scope audit? If there isn't one, does it require more work/expense on your part as an audit firm?

Thanks!

[Guest LVanSteeter]

Okay,

If ABC Trust Co is also the investment company, then they could issue the trustee certification. If not, then they can't.

I work for a 103 12 registered investment company. We can issue the certification only if we are the trustee. If the plan has another trustee (Joe Smith, JZA Trust Co., etc) then we can't issue the certification.

Unless the trustee is also falls under the bank, insurance company or 103-12 investment company, then I think you are out of luck and will fall under full scope audit rules.

Every auditor I have ever come across wants the SAS 70 from where the assets are invested. If there isn't one, yes much more work for the auditor. However, I think any 103 12 investment company would probably have this available.

[E as in ERISA]

My understanding: The auditor has certain steps that apply to verification of the value etc. of the investments. Other steps regarding the controls for plan accounting and processing. The certification reduces the number of steps in regard to the investments. SAS 70 reduces steps in regard to controls. It can still be "limited scope" if the financial institution issues certification. But it may not cost any less if the auditor has to perform the additional steps because there is no SAS 70.