May a retirement plan's auditor act as the plan's representative before the IRS in a correction procedure?

[Peter Gulia]

Imagine an independent qualified public accountant in its audit of a retirement plan's financial statements discovers an operational error, one that if not corrected could result in the plan's tax disqualification.

May the same accounting firm act as the plan sponsor's representative before the IRS for a correction procedure?  (Assume the firm desires to continue as the IQPA auditor.)

Is there an independence problem?

Are there conditions under which there would not be an independence problem?

 

 

[Flyboyjohn]

Ultimately it's a decision for the IQPA to make based on its analysis of the independence rule but my personal opinion as a CPA is that assisting the client in a discrete compliance/correction engagement does not impair independence.

To me it's similar to preparing the 5500 which is a compliance function that I think all CPAs consider to not impair independence. 

 

[ESOP Guy]

I know of CPA firms that have represented one of our ESOPs during an IRS audit and they audited the ESOP. 

[david rigby]

Peter,

At first, this sounded ridiculous.  However, upon further thought, I considered it from the perspective of an actuary, and the actuarial profession’s Code of Professional Conduct.   In my view, such representation is possible, but might not be advisable; I would tread very carefully.

 

For reference: http://www.actuary.org/content/code-professional-conduct

Any actuary who is a member of one of the five US-based actuarial organizations is bound by this Code.  Similar rules apply to our friends in the Canadian Institute of Actuaries (yep, their acronym is CIA).

 

If your hypothetical involved an actuary, the COPC would impact the actuary in multiple ways.  To my reading, these are the most obvious:

Precept 1.  Uphold the reputation of the profession.  In your hypothetical, the actuary must consider whether the public image of such action might be detrimental, whether or not there was a conflict.

Precept 2.  Is the actuary qualified to represent the client before the relevant agency?

Precept 7.  Full disclosure to any relevant parties of an actual or potential conflict of interest, and prior agreement by relevant parties.

 

 

[Peter Gulia]

Flyboyjohn, ESOP Guy, and David Rigby, thank you for the helpful observations.

 

[Bob the Swimmer]

As a CPA and lawyer with a Big Four for over 20 years in DC, I do not recognize this as a significant problem. Don't know that any of the myriad independence rules in the Code or ERISA or SEC change this. Remember that actuaries have different standards which I am well aware of. 

Typically, accounting firms often refer these issues to their consulting units to correct, if they have such consulting units.

I'd be interested what anyone else feels might impair independence in this regard.