The AICPA Employee Benefit Plan Audit Quality Center has prepared this document to assist you in identifying and implementing best practices for your firm’s ERISA employee benefit plan (EBP) audit practice. This tool is designed to be used by all firms that perform EBP audits, whether your firm performs just a few EBP audits or has (or is considering developing) a specialized EBP audit practice. This tool provides tips for establishing effective quality control policies and procedures specific to your EBP audit practice; provides examples of best practices for each phase of the audit engagement, including a suggested timeline for implementation; and provides links to useful tools and resources.
The U.S. Department of Labor (DOL) Employee Benefits Security Administration (EBSA) issued a report, Assessing the Quality of Employee Benefit Plan Audits, which found deficiencies in the quality of audit work performed by independent CPAs with respect to financial statement audits of ERISA employee benefit plans for the 2011 plan year.
EBSA's assessment of audit quality included a statistical review of 400 plan audits performed by 232 CPA firms. EBSA found that 61% of the audits fully complied with professional auditing standards or had minor deficiencies. EBSA found that 39% of the audits had one or more major deficiencies with respect to one or more relevant GAAS requirements which would lead to a rejection of the Form 5500 filing. EBSA also found that 17% of the audit reports reviewed in their study failed to comply with one or more of ERISA's reporting and disclosure requirements.
EBSA found a clear link between the number of EBP audits performed by a CPA and the quality of the work performed, EBP-specific training contributed to better audit work, and EBPAQC firm members tended to produce audits with fewer deficiencies. EBSA also found that CPAs failed to comply with professional standards either because they were not adequately informed about EBP audits, or failed to properly utilize the technical materials in their possession. The audit areas with more frequent deficiencies were in areas unique to EBP auditing, including testing contributions, benefit payments, participant data, and party-in-interest/prohibited transactions.
EBSA's report contained 11 recommendations focused on enforcement, changes to DOL regulations and amendments to ERISA, and outreach. These recommendations include, among other actions, EBSA revising its case targeting to focus on CPAs with smaller EBP audit practices that audit plans with large amounts of plan assets; working with the National Association of State Boards of Accountancy (NASBA) and the AICPA to improve the investigation and sanctioning process for CPAs performing significantly deficient work, and working with the AICPA's Peer Review staff to streamline the peer review process and make it more responsive in helping to improve EBP audit quality. EBSA plans to correspond with plan administrators and provide information about how to select a qualified plan auditor, as well as reach out to CPA firms, state boards of accountancy, and state CPA societies.
Journal of Accountancy article describing key points of the DOL report.