A weird one

[Lori Friedman]

On a qualified trust's financial statements, every number is rounded to the nearest $1,000. For example, interest income of $859,247 gets reported as $859,000.

The client wants the related plan's Form 5500 to be prepared using actual, precise dollar amounts (the $859,247 instead of the $859,000). In other words, the financial statements, as attached to the return, won't agree to the numbers disclosed on the return.

I've never encountered this situation until now, and I can't find any guidance. Every cell in my body, however, is screaming "foul". I think that the two documents have to be consistent. Or, if the consistency isn't required, surely the inconsistency would raise a flag with DOL?

Has anyone ever dealt with this matter? What did you do?

I think I'll change my username to "I Hate Benefits".

[david rigby]

I have never seen this as a problem. Many examples where the 5500 is completed with unrounded amounts and the auditor statement shows rounded. A few vice versa.

[Lori Friedman]

Well, I think I've answered at least part of my own question. The Form 5500, Schedule H and Schedule I instructions say to "[r]ound off all amounts reported...to the nearest dollar." The PPC 5500 Deskbook extrapolates a bit: "amounts cannot be rounded to any number above a dollar, such as thousands."

So, the rules make me prepare Form 5500 down to the dollar, even though the attached financial statements won't agree. I guess this one will be my client's problem, not mine.

[Mike Preston]

As pax has said, it isn't an issue.

The rules that accountants follow are different from the rules that 5500 preparers follow.

Happens all the time.

[Lori Friedman]

But, Mike, in this situation I'm both an accountant and a 5500 preparer. How do I resolve this inherent conflict? Should I split myself into two distinct personalties that will talk to, and perhaps have heated arguments with, each other? Will I eventually go spinning off into space and land on another planet (preferably a planet with no Form 5500's)?

But seriously, I find that nonissues take on great importance at the end of an exhausting week. When I'm mentally fatigued, I start to over-think everything.

[Mike Preston]

;-)

[GBurns]

You are an accountant, but are you THE accountant who made the decision to prepare the Trust financials in that manner?

Does it really matter that another accountant thinks that it should be different, even if it does not seem to matter to the IRS/DoL?

Is the fact that the figures are different any different a situation from that which occurs between figures for tax accounting versus figures for financial reporting and accounting? Do we not actually keep 2 different sets of books?

[Lori Friedman]

George, I guess you could say that I'm the accountant who prepared the financial statements, because my firm performed the audit. I didn't personally work on the audit -- I spend all my time in the Tax Department -- but the same firm's generating both the financial statements and the Form 5500.

[Guest b2kates]

Lori, it is my recollection, that the financial statements require a footnote reconcilling any differences between the FS and the 5500.

I do not understand how a trust can round to the 1000s while still being "materially" correct.

It has always been my pet peeve that the audit team is not the correct group to do the FS for employee benefits plans. They work in the arena of materiality; while ERISA reporting requires correct amounts.

See jurat at signature line for 5500.

[Lori Friedman]

Brett,\

I'm no auditor (I avoid audits as if they were infectious diseases), but I recall that you're absolutely correct. The accountant's opinion includes a disclosure note to reconcile any differences between the financial statements and Form 5500. Most often, you see this for welfare benefit plans with "incurred but not reported" claims; the total amount gets added to Form 5500, but it's not a fixed liability for financial statement inclusion.

Time to beat up on the audit team. Hey...this will be the first fun thing that I get to do today!

[Bill Presson]

Lori,

My second favorite thing to do is "beat up" auditors. :-)

Can you give us an online summary?

[Lori Friedman]

Bill, only if you'll give us an on-line summary of your first favorite thing to do.

[Guest b2kates]

beating up the audit team is a great way to break the tension of tax season.

[Bill Presson]

If only I hadn't used my real name, maybe....

:-)