For this program, attendees must listen to the audio over the telephone.

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1 Presenting a live 110 minute teleconference with interactive Q&A Employee Benefit Plan Audit Peer Reviews Preparing for Risk Assessment, Control Document Inspection, and Other Peer Reviewer Concerns TUESDAY, NOVEMBER 29, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: James Smolinski, Partner, Baker Tilly Virchow Krause, Madison, Wis. Amanda Eaves, Partner, Null-Lairson, Houston For this program, attendees must listen to the audio over the telephone. Please refer to the instructions ed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at ext. 10.

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3 Continuing Education Credits FOR LIVE EVENT ONLY Attendees must listen to the audio over the telephone. Attendees can still view the presentation slides online but there is no online audio for this program. Please refer to the instructions ed to the registrant for additional information. If you have any questions, please contact Customer Service at ext. 10.

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5 Employee Benefit Plan Audit Peer Reviews Seminar Nov. 29, 2011 James Smolinski, Baker Tilly Virchow Krause Amanda Eaves, Null-Lairson k l

6 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

7 James Smolinski, Baker Tilly Virchow Krause RULES GOVERNING BENEFIT PLAN PEER REVIEWS

8 General Comments Related To Peer Review I. General licensed firms have peer review requirement A. The report acceptance body (RAB) is either: 1. State peer review committee 2. AICPA Peer Review Board s National Peer Review Committee B. 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 review. II. Fiscal year-ends Peer review is due six months after FYE; this affects plans being reviewed. 8

9 General Comments Related To Peer Review (Cont.) III. AICPA Audit Quality Center: Peer review practice monitoring task force for employee benefit plans A. 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 engagements checklists 3. Additional CPE trainings and webinars offered C. AICPA staff meet with DOL representives on a quarterly basis. 9

10 Applicable Guidance Related To Peer Review I. Peer review guidance A. AICPA Revised Interpretation PR Sect. 9100: Standards for performing and reporting on peer reviews 2. Interpretations of Sect Systems review and engagement peer reviews B. Peer Review Alert Enhanced peer review guidance for the review of employee benefit plan audit engagements II. AICPA Employee Benefit Plan Audit Quality Center A. Audit checklist B. Q&A 10

11 Applicable Guidance Related To Peer Review (Cont.) III. AICPA Revised Interpretation 59-1 Consideration for selection A. Reasonable cross-section of the reviewed firm s accounting and auditing practice B. Emphasis on higher-risk practice areas 1. Risk of engagements and types of benefit plans as part of the selection criteria 2. Limited vs. full scope 3. Types of plans (DC, DB, H&W and 403(b) plans) C. Firm s length of experience and number of audits performed, member s experience and CPE/specialized training 11

12 Applicable Guidance Related To Peer Review (Cont.) IV. Peer Review Alert Unique risk associated with each type of plan A. Defined contribution B. Defined benefit C. Health and welfare 12

13 Applicable Guidance Related To Peer Review (Cont.) V. AICPA Employee Benefits Plan Audit Quality Center A. History DOL Office of Inspector General report finds 23% of audits fail to meet professional standards : Seemed that audit quality was getting worse and spreading to the largest CPA firms 3. EBPAQC established 2004 B. Resource for EBP auditors as well as clients C. Checklists for peer review 1. Tool used to evaluate engagements 2. Detail review for each section of the audit 13

14 Amanda Eaves, Null Lairson RECENT PEER REVIEW EXPERIENCES

15 Planning Investments Contributions Benefit payments Participant data and allocations Parties in interest Other 15

16 Planning documentation 1. Audit scope 2. Communication with those charged with governance Risk assessment 1. Documented 2. Flow through h to workpapers Risk of material misstatement due to fraud 1. Brainstorming 2. Client inquiries 16

17 Understanding of internal controls 1. Inquiries of management 2. Analytical procedures 3. Observation and inspection Initial audits 1. Tests of beginning net assets 2. Individual account balances SAS 70 report 1. Proper use 2. Documentation of review Benefit obligation 1. Calculation 2. Use of actuary 17

18 Limited-scope audits 1. Certification 2. Qualifying institution 3. Comparison to the financial statements Full-scope audit 1. Tests of year-end market values 2. Authorization i 3. Realized and unrealized gains (losses) Disclosures 1. GAAP 2. DOL rules and regulations 18

19 Internal controls over payroll 1. System understanding and documentation 2. Testing 3. Deferral authorizations 4. Payroll register Testing of elective deferrals 1. Participant confirmations 2. Alternatives to confirmation 3. Definition of compensation o 4. Testing of contribution 5. Authorization of deferrals Timeliness of contributions 1. Controls 2. Schedule 3. Testing 19

20 Eligibility testing 1. Participant data 2. Timing 3. When are distributions allowed? Review and approval Review of benefit calculations Confirmations 20

21 Payroll testing 1. Relevant dates (birth, hire, etc.) 2. Hourly rate or salary 3. Hours worked Eligibility test 1. Eligibility requirements 2. Related data Investment income allocation testing Total net assets = Total of participant accounts 21

22 Documentation ti of work performed 1. Related parties 2. Transactions 3. Consideration of financial statement effect Disclosure Supplemental schedules 22

23 Management representation 1. Proper representations 2. Use of an attorney 3. Late contributions Staffing 1. Supervision 2. Training 3. Experience 23

24 James Smolinski, Baker Tilly Virchow Krause DOCUMENTATION ISSUES

25 Documentation Emphasis I. Written audit programs A. No written audit programs = kiss of death = modified opinion B. Important to note that one size does not fit all 1. Tailor for specific types of plans > Definied contribution > Health and welfare > Defined benefit 2. Tailor for specific scope of plan > Limited-scope > Full-scope 25

26 Documentation Emphasis (Cont.) II. System of quality controls A. How does the firm ensure quality of engagement g meets professional standards? 1. Do you have an internal inspection program? 2. CPE requirements 3. Technical review 4. AICPA quality control standards QC Sect. 10A: A firm s system of quality control > Lays out requirements for quality control > Independence checks > Client acceptance and re-acceptance procedures 26

27 Documentation Emphasis (Cont.) II. System of quality controls (Cont.) B. How does the firm measure that quality of engagement g meets professional standards? 1. Are inspection results disseminated to improve quality? 2. Are CPE requirements tracked and compliance ensured? 3. Is there a second partner or reviewer who does an independent review? 27

28 Documentation Emphasis (Cont.) III. Tools and templates A. Audit progams B. Standardized testing templates Examples: Sampling Participant data testing Eligibility Loans Distribution Full-scope investment 28

29 Documentation Emphasis (Cont.) IV. EBPAQC membership requirements A. Designated audit partner B. Partners are members of AICPA C. System of QC (CPE compliance) D. Monitoring program (Inspection) E. Peer review report made public F. EBPs selected for peer review G. Periodically file info H. Pay dues 29

30 Documentation Emphasis (Cont.) V. Inspection requirements A. Review of specific engagements g B. Review of CPE records C. Review of training program (if applicable) D. Summarize and evaluate the findings E. Communicate inspection results F. Remediate issues as needed 30

31 Documentation Emphasis (Cont.) VI. Inspection considerations A. Internal inspections are required in the year of the firm s peer review. B. Can be modified to avoid duplication C. 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 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 file. 31

32 Amanda Eaves, Null Lairson James Smolinski, Baker Tilly Virchow Krause PREPARING FOR THE NEXT PEER REVIEW

33 1. Ongoing monitoring A. File reviews B. Report reviews C. Staff reviews 2. Identify issues as they occur 3. Modify and correct procedures as needed 33

34 1. Review prior-year comments 2. Take action A. Change in audit programs B. Educate staff C. Monitor for correction 34

35 1. Experienced in EBP audits 2. EBPAQC member (it is a requirement if you are a member) 35

36 1. Plan type A. Defined contribution B. Defined benefit C. Health and welfare 36

37 2. Audit type A. Limited scope B. Full scope C. Initial audit 37

38 3. Engagement Hours 4. Partner 5. Manager 38

39 Compile a listing of persons managing g EBP audits and their related experience and training 39

40 Practical Steps To Prepare For Peer Review I. Review the Audit Quality Center requirements and checklists A. 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 already been reviewed through your internal inspection process. 40

41 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 procedures IV. Review CPE compliance for all of your EBP engagement teams V. Ensure appropriate documentation of review and adherence to QA document 41