Changes to pension auditing standards?

[AndyH]

I have a client that is (last year and this year) being put through the ringer about tighter auditing standards, including SAS 112, as applied to DB 5500 audits. But this is my first 2006 audit.

The context is a limited scope audit. The auditor (for the first time) wants the sponsor to draft the footnotes and schedules that will comprise the 5500 auditor's report. They are implying that there may be control weakneses that may need to be reported as "deficiencies" otherwise.

The auditor (last year) insisted upon reviewing many retiree calculations done many years ago. They are insisting there can be no hand corrections to benefit calc worksheets-records must be perfect and retyped if necessary.

This is a meticulous client with near perfect records. This seems like complete nonsense to me. Is there anything to this? Is anybody else experiencing this increase in zealousness? Or is this all about higher fees or profit margins?

I can understand the applicability to corporate financial statements. Does SAS 112 revolutionize pension 5500 audits?

I hope this is isolated and not a wave of the future. Comments?

[david rigby]

Have the auditee draft part of the audit report?! Is the auditor lazy?

I agree with you about the benefit calculations: it is nonsense to retype (most) corrections. The auditor may be viewiing the forest but missing the trees: the important aspect of calculation worksheets is that they are verified, initialed, checked, etc. Worksheets are not public documents; IMHO, it is reasonable for worksheets to show corrections as they are made.

[AndyH]

The auditor says they must audit, not prepare, the financials. To prepare and audit would be a deficiency or weakness of some sort that must be reported in a management report. Hogwash I say within the context of an ERISA report. But WDIK?

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[BeckyMiller]

One of the common misconceptions is that the audited financial statements are the responsibility of the auditor. In fact, they are the responsibility of management or the Plan Administrator in the context of an ERISA plan. The auditor is supposed to be auditing all of the information - the numbers, the classification and the disclosures. The only item that is really owned by the auditor is the auditor's report / opinion as attached to the front of the financial statements.

Having said that the benefit plan community needs to understand that there are in fact a ton of new statements on auditing standards (SASs) coming out that do apply to benefit plan audits. There are a bunch of risk assessment standards, SAS 112 on reporting weaknesses and SAS 114 on communicating in writing with the appropriate governing body of the plan.

It is somewhat controversial whether the plan's management must actually prepare the financial statements (that is required of an plan filing Form 11-k) or does the plan's management merely have to have the skills to be able to do this and have prepared and taken responsibility for the underlying financial records that support the formal financial statements. The audit community is working its way through the parameters of this statement at this time, so you are likely to see some different interpretations coming through.

The point about manual adjustments to calculations is a bit fastidious, but it goes to the integrity of the database - how does the auditor get comfortable that the issues corrected on the statement have been addressed in the system so that they do not crop up for other participants. Retyping, though, shouldn't be the solution - I would look at a system enhancement, review steps, etc.

Go to the AICPA Audit Quality Center at http://ebpaqc.aicpa.org for more information on developments in this area.

[AndyH]

Thank you Becky; that is very helpful.

It does confirm my worst fears, however. I do find the changes outrageous within the context of a 5500 limited scope audit.

Those of us who work on DB plans have noticed a strong trend line here with the accounting community and retirement plans.

"Controversial" is well put.

[Guest Grant]

I have to chime in and say that if financial conditions, over-regulation, the PPA or FAS 158 do not put the final nails in DB plans, the Accounting firms will.

The Big 4, at least, have bunches of actuaries with nothing to do then look over the shoulders of their client's actuaries and pick apart all of their assumptions. If they had their way, there would have to be a full experience study done every year to justify every single assumption. It is one thing for a plan the size of General Motors, but quite another for plans with $10 million in assets....

Add to this the quibling over 5500 audits....where everyone is looking at the same asset statement and coming up with different opinions on what should be on the Schedule H. The auditors may as well prepare the darn thing....no matter what you do, they will change it somehow.

And don't get me started on the personnel they have doing these audits, either plan or company. I am going to start charging the accounting firms for training their employees on what a DB plan is!

[ishi]

I know that nominations are now open for the 2007 Jarvis Farley Service Award. This award, created in 1991, honors an actuary whose volunteer efforts on behalf of the American Academy of Actuaries have made significant contributions to advancing the profession.

Perhaps there is an actuary among us who can be nominated for "stellar service in the area of Pro Bono Auditor Education". Just a thought.

[JanetM]

As a plan sponsor I am fed up with training children hired by audit firms to do the audit. First off they don't know a db from a dc plan.