5500 Auditing - Excessive?

[AndyH]

Old client - new auditor - large plan

Auditor wants to see 10% of retiree original calcs and forms - many going back 20+ years.

Auditor says they must select from those receiving payments - not necessarily processed during audit year.

Considering IRS statute of limitations and PBGC record retention, this seems abusive.

Is this is a reasonable request to audit calcs done 20+ years ago? Are there any relevant auditing standards here?

[WDIK]

October 15th is still too recent for me to comment objectively about plan auditors and the reasonableness of their requests.

[david rigby]

IMHO, this is a reasonable request. However, the auditor may have to accept that documentation for a 20-year retiree is not readily available; no harm in looking.

[AndyH]

(To WDIK)

Now, if I were Harwood or Willy .......

But, I do agree.

[AndyH]

IMHO, this is a reasonable request. However, the auditor may have to accept that documentation for a 20-year retiree is not readily available; no harm in looking.

Uggghhh. :angry: Thanks for the input. I will yell less loudly now.

[JanetM]

AndyH, most will go overboard in first year and detail test everything to excess. Normally this is so that in future years they can rely on the original testing. The theory is if you test 2006 to death, for 2007 audit you can only look at 2007 retirees. But in order to do that in the future you have to have pain in the initial year.

Am plan sponsor of 13 DB plans - we changed auditor this year and it was extremely painful.

[Andy the Actuary]

I observe auditors who perform their job as auditor. Then, I see those who act as if they are combination Gestapo going out of their way to complicate life and find something wrong. While the auditors may be empowered (by AICPA) to go back 20+ years, from a practical perspective 20+ years is totally unreasonable despite that others have claimed it is. Client should talk to the audit partner and not the kid du jour* the firms deploy.

If all else fails -- get a new auditor. When interviewing, ask them to provide copy of their audit guidelines and discuss with them before hiring. 20+ years is unheard of.

*Here is such example: Auditor had completed their own version of some benefit calculations (under an extremely complicated plan) and had advised (a clerk at the client) to go back to former employee and get money. The original calculation had been completed by a big name actuarial consulting firm.

I advised the client: "The payment of benefits is a legal and not an accounting matter and would caution if you have questions of how to proceed, to discuss with and obtain guidance from your legal counsel. However, before you take any action on the "Distribution Testing Results" determined by your auditor, I recommend that their exhibit along with their calculations/explanations be forwarded to big name actuarial firm for their review. The big name actuarial firm calculated and certified benefits and if there is an issue, they should advise you what action, if any, should be taken.

[AndyH]

Janet was right about the first year issue. This problem occurs mostly in the first year. I have seen it several times recently; clients seem to be changing auditors more frequently it seems; with good reason as well.

I have gotten them to back down before and limit the calcs to recent. This one says no and it just happens to be the largest and most time consuming to deal with.

When they get new clients, do they check 20 years of prior accounting records?

[masteff]

I'd add that post-Enron, some of the general audit standards have gotten more excessive, resulting in audit requests that are excessive (and made more so by over-zealous application of the tighter standards).

My horror story:

We had a plan which came to us via acquisition, that was frozen as of the acquisition in the mid-90's. Post-Enron, our auditors, in their 3rd year of doing the audit, suddenly decided they needed to test the definition of compensation used for the frozen calculations which had been certified by a major actuarial firm. The auditor tried to tell us that the definition of comp was misapplied and that 12-year old calcs needed to be changed. Let me say that again, an audit staffer who was only two years out of college told us that compensation calculations determined 12 to 20 years prior were wrong and needed to be changed and if we didn't then they'd have to put in our audit report that we were at risk of having the plan disqualified. I'm sure, AndyH, that my boss then said many of the choice things you're saying now. We barely got the staffer stopped before a full-fledged fishing expedition got started in our file room.

Along the lines of what Andy the Actuary said, only solution to excessive audit requests is to work your way up thru the chain of command of the audit firm and find someone w/ a brain who can maybe get a grasp on what's truly reasonable and necessary (keeping in mind there might have to be compromise from both sides).

[Bill Presson]

I walked over to our audit department and asked them this question. The answer I got is they would not go back nearly that far. They would make a note to the audit report indicating what they were reviewing and then complete the audit on the current year.

FWIW