The formal name for setting auditor expectations is ‘written representations.’ Without a document of representations, the auditor is limited in his or her ability to provide a thorough opinion of the plan. The plan managers who are responsible for financial statements need to prepare a complete document for the auditor that includes the following:
– Financial records and related transaction information
– Minutes of meetings related to the plan such as plan committees, trustees or directors
– Communications from regulatory agencies
In addition, the document must also include the following eight disclosures:
- Acknowledgement of the fair representation of the financial statements of net assets available for plan benefits and statement of benefit obligations
- Statement that any uncorrected misstatements are immaterial to the financial statements as a whole
- Internal control responsibility and procedures to prevent and detect fraud
- Knowledge of any suspected fraud by management, employees former employees, regulators or others
- Knowledge of violations or possible violations of regulations or unasserted claims
- Intentions for the plan that may affect the classification of assets or liabilities
- Verbal or written guarantees or gain/loss contingencies that affect the plan’s liabilities
- Documentation of assets that are pledged as collateral
Your auditor will also want to know answers to these five questions:
- Does your plan have strained financial circumstances that may affect the financial health of the plan?
- Have you provide records of all written and verbal communications with regulatory agencies?
- Are allowances for receivables adequate?
- Are the opinions expressed by plan management sustainable?
- How reasonable and relevant are fair value assumptions? What are your criteria for measurement?
Finally, with regard to limited-scope audits, be sure to detail the plan administrator’s responsibility related to accurate trustee certification. Paying attention to all of these details will ensure an accurate and supportable audit that can protect plan sponsors and companies from any perceived mismanagement.