Error Found by Auditor

What are your thoughts on this; a firm has audited a 401(k) plan for many years. A new auditor was recently assigned this year and has brought up a potential issue that has existed since the plan was established. Is it fair to ask why they never caught the issue earlier? Does the firm have any culpability in this case?

9 hours ago, khn said:

What are your thoughts on this; a firm has audited a 401(k) plan for many years. A new auditor was recently assigned this year and has brought up a potential issue that has existed since the plan was established. Is it fair to ask why they never caught the issue earlier? Does the firm have any culpability in this case?

How big of an issue is it?

I don't know the complete details but there are a handful of corporate-owned individually named annuities that existed within a plan that merged in 20+ years ago. They've always been reported on the 5500 and now there is some question whether they should have been included within that merger or not. It was so long ago that none of the participants are active and anyone involved has long since left the company, no one is totally sure of the history. 

What does the auditor propose doing? Is the error within the auditor's materiality standard?

If you are going to have to restate prior financials, I would push back hard. If that's not the remedy proposed by the auditors -- maybe get counsel to look at the issue and opine that everything is pretty much OK. 

Note that a new firm of auditors will have to focus on this issue so make sure you have your resolution tidily addressed in your files.

20 hours ago, khn said:

there are a handful of corporate-owned individually named annuities that existed within a plan that merged in 20+ years ago. They've always been reported on the 5500 and now there is some question whether they should have been included within that merger or not. It was so long ago that none of the participants are active and anyone involved has long since left the company, no one is totally sure of the history. 

khn, aside from the issue of the responsibility of the auditor, this sounds really bad they way you've stated it here. The annuities still exist? Who is going to get the money? Will the payments be tax-qualified?

Thanks for your comments. Their Erisa attorney is involved, but the client is upset that they've relied on this firm to audit the plan and they've found such a potentially big issue after so many years of auditing the plan.