Employee benefit plans with 100 or more participants are required to have an independent audit each year. Yet, ERISA is unique in that it allows plan administrators to opt for a limited scope audit of their financial statements.
In a full-scope audit, everything in the plan is subject to testing. By contrast, with a limited scope audit, the auditor does not perform auditing procedures on certain investment information that is prepared and certified by a qualified trustee or custodian. This information is limited to investment valuation and income. All other aspects of plan operations will still be subject to detailed testing.
A qualified institution capable of certifying plan information is a bank, insurance company or similar institution that is regulated and supervised by a state or federal agency.
What’s in An Opinion?
During a full-scope audit, the auditors look at everything — from contributions and benefit payments to the valuation of investments and related earnings. Therefore, the auditors are able to provide an opinion about whether the plan’s financial statements — including supplemental schedules — are presented fairly in accordance with generally accepted accounting principles (GAAP) or Department of Labor regulations, as applicable.
With a limited scope audit, the auditors are not able to express an unqualified opinion because, while they still perform tests of contributions and benefit payments, significant investment information is provided by an outside party and is not formally audited. In fact, the CPA very specifically disclaims having an opinion. Note that a Disclaimer of Opinion due to certified information is acceptable to the Department of Labor as part of a limited scope audit.
Plan administrators have a fiduciary duty to ensure that a qualified institution has certified both the accuracy and the completeness of the investment information. In addition, it needs to be determined that the certification covers all plan investments. If not, these investments and related income would need to be subject to full scope procedures.
In the end, a quality audit will not only help plan fiduciaries fulfill their legal duties, but it will also provide the reliable information needed to prudently manage and administer the plan.
Our firm has extensive experience with employee benefit plan audits. Contact Wende Wadsworth at 425.629.1990 or email@example.com to discuss how we can help.