What consequences result from a CPA's adverse opinion on a plan's financial statements?

[Peter Gulia]

Consider this scenario: An employee-benefit plan's administrator (the plan's sponsor) and the independent qualified public accountant disagree about a point of accounting for the plan's financial statements. The administrator considers its knowledge of accounting superior to the IQPA's knowledge.

The IQPA threatens to issue an adverse report. The administrator says "bring it on." The administrator does not fear that checking the "adverse" box at Schedule H's part III would trigger an examination because EBSA and IRS both have open examinations, with teams of examiners using office space in the plan's sponsor's headquarters. Also, the administrator does not fear the IQPA's explanation because the administrator confidently believes the IQPA is wrong.

Beyond widening and intensifying the open examinations, is there any other unwelcome consequence that results from checking the adverse box and attaching the report that explains the IQPA's reasons for its adverse opinion?

[david rigby]

Just a few random thoughts:

- More money spent on attorney(s)?

- More money spent on a second auditor? (Maybe a third to break the tie?)

- Doubts raised in the mind of lenders? Real problems with existing loan covenants?

- Requirement(s) to address an adverse opinion in the annual report/proxy?

- Questions from SEC?

- Questions and/or legal action from stockholders?

- Could adverse plan audit trigger some adverse corporate audit?

If it's not significant $$, someone might question the utility of spending additional administrative $ to chase it.

[Peter Gulia]

David Rigby, thank you for the good critical thinking.

It happens that the employer I described isn't worried about accounting to shareholders because the company has only one owner, and the owner agrees with the plan's administrator.

The plan's administrator is considering filing the IQPA report because the administrator believes doing so is less expensive (for the plan) than replacing the IQPA.

Thanks again for the good thinking, and maybe smart BenefitsLink mavens will spot issues we missed.

[Flyboyjohn]

I recall hearing Ian Dingwall saying that you should never file a 5500 with an Adverse opinion, better to file with no opinion.

Suggest employer start a search to see if he can find an IQPA that agrees with his position but that could also result in the Schedule C reporting of the reason for change in auditor.

Your client sounds like a real piece of work...

[Peter Gulia]

Flyboyjohn, thank you for your further thoughts.

All the players considered the Schedule C reporting about a change in the IQPA.

The employer described above is not my client.