Presenting a live 110‐minute teleconference with interactive Q&A

Employee Benefit Plan Audit Peer ReviewsEmployee Benefit Plan Audit Peer ReviewsPreparing for Risk Assessment, Control Document Inspection, and Other Peer Reviewer Concerns

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

TUESDAY, NOVEMBER 29, 2011

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

James Smolinski Partner Baker Tilly Virchow Krause Madison WisJames Smolinski, Partner, Baker Tilly Virchow Krause, Madison, Wis.

Amanda Eaves, Partner, Null-Lairson, Houston

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E l  B fit Pl  A dit P  Employee Benefit Plan Audit Peer Reviews Seminar

Nov. 29, 2011

Amanda Eaves, Null-Lairson@ ll l i

James Smolinski, Baker Tilly Virchow Krausej li ki@b k till aeaves@null-lairson.comjames.smolinski@bakertilly.com

Today’s Program

Rules Governing Benefit Plan Peer Reviews[James Smolinski]

Slide 7 – Slide 13

Recent Peer Review Experiences[Amanda Eaves]

Slide 14 – Slide 23

Documentation Issues[James Smolinski]

Slide 24 – Slide 31

Preparing For The Next Peer Review[Amanda Eaves and James Smolinski]

Slide 32 – Slide 41

RULES GOVERNING BENEFIT James Smolinski, Baker Tilly Virchow Krause

RULES GOVERNING BENEFIT PLAN PEER REVIEWS

General Comments Related To Peer Review

I. General – licensed firms have peer review requirementA. The report acceptance body (RAB) is either:p p y ( )

1. State peer review committee2. AICPA Peer Review Board’s National Peer Review

CommitteeCommitteeB. SEC registrant’s plans are not subject to peer review.C. All engagements subject to GAAS, SSARS, SSAE, GAGAS

and non SEC issuers are subject to peer reviewand non-SEC issuers are subject to peer review.II. Fiscal year-ends

Peer review is due six months after FYE; this affects plans being reviewed.

8

General Comments Related To Peer Review (Cont.)( )

III. AICPA Audit Quality Center: Peer review practice monitoring task force for employee benefit plansA. Formed to focus specifically on enhancing the peer review

quality for EBP audits, as these are considered high risk engagements.

B. Recent activities 1. Revised PRP Sect. 20,700 EBP audit engagement

checklist (discussed later)2. Approved 403(b) specific questions added to the pp ( ) p q

engagements checklists3. Additional CPE trainings and webinars offered

C AICPA staff meet with DOL representives on a quarterlyC. AICPA staff meet with DOL representives on a quarterly basis.

9

Applicable Guidance Related To Peer Review

I. Peer review guidanceA. AICPA Revised Interpretation 59-1C p 59

1. PR Sect. 9100: Standards for performing and reporting on peer reviews

2 Interpretations of Sect 1002. Interpretations of Sect. 1003. Systems review and engagement peer reviews

B. Peer Review Alert 11-03 - Enhanced peer review guidance for the review of employee benefit plan audit engagementsfor the review of employee benefit plan audit engagements

II. AICPA Employee Benefit Plan Audit Quality CenterA. Audit checklistB. Q&A

10

Applicable Guidance Related To Peer Review (Cont.)( )

III. AICPA Revised Interpretation 59-1Consideration for selectionCA. Reasonable cross-section of the reviewed firm’s accounting

and auditing practiceB Emphasis on higher-risk practice areasB. Emphasis on higher-risk practice areas 1. Risk of engagements and types of benefit plans as part of

the selection criteria2 Limited vs full scope2. Limited vs. full scope3. Types of plans (DC, DB, H&W and 403(b) plans)C. Firm’s length of experience and number of audits performed,

C /member’s experience and CPE/specialized training

11

Applicable Guidance Related To Peer Review (Cont.)( )

IV. Peer Review Alert 11-0303Unique risk associated with each type of planA. Defined contributionB Defined benefitB. Defined benefitC. Health and welfare

12

Applicable Guidance Related To Peer Review (Cont.)( )

V. AICPA Employee Benefits Plan Audit Quality CenterA. History

1. 1989 DOL Office of Inspector General report finds 23% 989 O O p G p 3%of audits fail to meet professional standards.

2. 1997 – 2004: Seemed that audit quality was getting worse and spreading to the largest CPA firmsp g g

3. EBPAQC established 2004B. Resource for EBP auditors as well as clientsC Checklists for peer reviewC. Checklists for peer review

1. Tool used to evaluate engagements2. Detail review for each section of the audit

13

RECENT PEER REVIEW Amanda Eaves, Null‐Lairson

RECENT PEER REVIEW EXPERIENCES

Planning Investments Contributions Benefit payments Participant data and allocationsp Parties in interest Other

15

Planning documentationPlanning documentation1. Audit scope2. Communication with those charged with governance

Risk assessment1. Documented2 Fl th h t k2. Flow through to workpapers

Risk of material misstatement due to fraud1. Brainstorming2. Client inquiries

16

Understanding of internal controls1. Inquiries of managementq g2. Analytical procedures3. Observation and inspection

Initial auditsInitial audits1. Tests of beginning net assets2. Individual account balances

SAS 70 tSAS 70 report1. Proper use2. Documentation of review

Benefit obligation1. Calculation2. Use of actuary

17

Limited-scope audits1. Certification1. Certification2. Qualifying institution3. Comparison to the financial statements

Full-scope audit1. Tests of year-end market values 2 A h i i2. Authorization3. Realized and unrealized gains (losses)

Disclosures1. GAAP2. DOL rules and regulationsg

18

Internal controls over payroll1. System understanding and documentation2 T ti2. Testing3. Deferral authorizations4. Payroll register

Testing of elective deferrals1. Participant confirmations2. Alternatives to confirmation3. Definition of compensation3 e t o o co pe sat o4. Testing of contribution5. Authorization of deferrals

Timeliness of contributionsTimeliness of contributions1. Controls2. Schedule3. Testing

19

Eligibility testing1 Participant data1. Participant data2. Timing3. When are distributions allowed?

Review and approval

Review of benefit calculations

ConfirmationsConfirmations

20

Payroll testing1 Relevant dates (birth hire etc )1. Relevant dates (birth, hire, etc.)2. Hourly rate or salary3. Hours worked

Eligibility test1. Eligibility requirements2. Related data

Investment income allocation testingg

Total net assets = Total of participant accounts

21

D t ti f k f dDocumentation of work performed1. Related parties2. Transactions

d f f l ff3. Consideration of financial statement effect Disclosure Supplemental schedules

22

Management representation1 Proper representations1. Proper representations2. Use of an attorney3. Late contributions

Staffing1. Supervision2. Training3. Experience

23

DOCUMENTATION ISSUESJames Smolinski, Baker Tilly Virchow Krause

Documentation Emphasis

I. Written audit programs A. No written audit programs = “kiss of death” = modified opinionB. Important to note that “one size does not fit all”p

1. Tailor for specific types of plans> Definied contribution > Health and welfare> Health and welfare > Defined benefit2. Tailor for specific scope of plan> Limited-scope> Full-scope

25

Documentation Emphasis (Cont.)

II. System of quality controlsA. How does the firm ensure quality of engagement meets q y g g

professional standards?1. Do you have an internal inspection program?2 CPE requirements2. CPE requirements3. Technical review4. AICPA quality control standards QC Sect. 10A: A firm’s

system of quality controlsystem of quality control> Lays out requirements for quality control> Independence checks> Client acceptance and re-acceptance procedures

26

Documentation Emphasis (Cont.)

II. System of quality controls (Cont.)B. How does the firm measure that quality of engagement q y g g

meets professional standards?1. Are inspection results disseminated to improve quality?2 Are CPE requirements tracked and compliance2. Are CPE requirements tracked and compliance

ensured?3. Is there a second partner or reviewer who does an

independent review?independent review?

27

Documentation Emphasis (Cont.)

III. Tools and templatesA. Audit progamsB. Standardized testing templates S g p

Examples:SamplingSamplingParticipant data testingEligibilityLoansDistributionFull-scope investmentFull scope investment

28

Documentation Emphasis (Cont.)

IV. EBPAQC membership requirementsA. Designated audit partnerg pB. Partners are members of AICPAC. System of QC (CPE compliance)D Monitoring program (Inspection)D. Monitoring program (Inspection)E. Peer review report made publicF. EBPs selected for peer reviewG. Periodically file infoH. Pay dues

29

Documentation Emphasis (Cont.)

V. Inspection requirementsA. Review of specific engagements p g gB. Review of CPE recordsC. Review of training program (if applicable)D Summarize and evaluate the findingsD. Summarize and evaluate the findingsE. Communicate inspection resultsF. Remediate issues as needed

30

Documentation Emphasis (Cont.)

VI. Inspection considerationsA. Internal inspections are required in the year of the firm’s p q y

peer review.B. Can be modified to avoid duplicationC Sole practitioners can satisfy the inspection requirementC. Sole practitioners can satisfy the inspection requirement

following the AICPA quality control standards in QC Sect. 10.

D Certain information is already in the EIPA’s public filesD. Certain information is already in the EIPA s public files.E. If not avaiable, you can send in your peer review report, and

the EBP AQC will coordinated publishing in the peer review public filepublic file.

31

Amanda Eaves, Null‐Lairson

PREPARING FOR THE NEXT 

Amanda Eaves, Null LairsonJames Smolinski, Baker Tilly Virchow Krause 

PEER REVIEW

1. Ongoing monitoringA. File reviewsB R t iB. Report reviewsC. Staff reviews

2. Identify issues as they occur

3. Modify and correct procedures as neededy p

33

1. Review prior-year comments

2. Take actionA. Change in audit programsB Ed ffB. Educate staffC. Monitor for correction

34

1. Experienced in EBP audits

2. EBPAQC member (it is a requirement if you are a member)

35

1. Plan typeA Defined contributionA. Defined contributionB. Defined benefitC. Health and welfare

36

2. Audit typeA Limited scopeA. Limited scopeB. Full scopeC. Initial audit

37

3. Engagement Hours

4. Partner

5 Manager5. Manager

38

Compile a listing of persons managing EBP audits and p g p g gtheir related experience and training

39

Practical Steps To Prepare For Peer Review

I. Review the Audit Quality Center requirements and checklistsA. Know what the reviewers will be focusing on, so you can

prepare to answer any questions related to specific engagements selected (20,700 EBP audit engagement).

B. Alert your EBP group early on regarding the peer review process.

C. Review the AQC requirements and checklists, if they haven’t Q q , yalready been reviewed through your internal inspection process.

40

Practical Steps To Prepare for Peer Review (Cont.)( )

II. Accumulate list of plans and types of engagements

III. Document how firm addressed quality control procedures laid out in your QA document - review files for adherence to your firm’s QA proceduresy Q p

IV. Review CPE compliance for all of your EBP engagement teamsteams

V. Ensure appropriate documentation of review and adherence to QA documentto QA document

41