401k Retirement Plans and Audit Services

When is a retirement plan required to have a financial statement audit and who requires it?

The Employee Retirement Income Security Act of 1974 (ERISA) requires an annual financial statement audit. The U.S. Department of Labor (DOL) administers it. The audited financial statements are required to be attached to the plan’s annual tax return (Form 5500). 

In general, retirement plans are required to have an annual audit performed once they reach 100 participants. Since there are exceptions to this rule for a variety of reasons, it’s best to consult your ERISA attorney, third-party administrator, or your plan record keeper as your participant count nears 100.

Audits of Retirement Plans are Unique

Retirement plans have different priorities than operating businesses and function differently. These plans are created for the benefit of the plan sponsor’s employees. The U.S. Department of Labor oversees all audits of retirement plans. The DOL acknowledges U.S. GAAP as an acceptable financial reporting framework and requires auditors to follow the Statements on Auditing Standards issued by the AICPA.

Besides those requirements, the auditor is also required to perform certain procedures unique to retirement plans. For example, audit procedures must be done on individual participant accounts to ensure allocations are correct and test how long it takes a plan sponsor to remit participant contributions to the plan.

Full-Scope v. Limited-Scope Audit

There are two types of audits defined contribution retirement plans can engage their auditor to perform, a full scope or limited-scope audit. 

A full-scope audit includes audit procedures related to all aspects of the plan’s financial statements and the notes to the financial statements. A limited-scope audit excludes audit procedures that are related to certain investments held by the plan if the plan meets certain requirements.

Defined contribution plans can satisfy the DOL’s audit requirement with a limited scope audit if the plan’s assets are held by a bank, insurance company, or similar institution that is regulated, supervised, and subject to periodic exams by a state or federal agency. When a plan qualifies and requests a limited-scope audit, the auditor does not perform any procedures that are related to the investment balances nor any related investment income for the investments that the qualifying financial institution holds.

The auditor’s report will be modified in some way due to the lack of audit procedures performed in a limited-scope audit. The modification will describe the procedures not performed as well as cite the DOL rule that allows this type of audit to be done. Plans can benefit from the limited-scope option because it lowers the audit’s cost.

Additional Work Required During an Initial Audit

Additional audit procedures will be required when you have your first retirement plan audit. Your auditor will have to perform certain procedures related to the plan’s beginning balances for the year under the audit. Every audit will be different. In some cases, several prior years may need to be examined to see if the beginning balances are accurate. If these procedures are not acceptable to your auditor’s satisfaction, they may not be able to issue an audit opinion that the Department of Labor finds acceptable.

Choosing a Retirement Plan Auditor for the Job 

At Steward Ingram & Cooper PLLC, we have a team of dedicated retirement plan auditors that will carry out employee benefit plans every year. We have extensive experience when it comes to qualified retirement plans. We can help with a full audit of your company’s retirement plan in Durham or a limited scope audit. We serve clients in Raleigh, Cary, Apex, Wake Forest, Wilson, and surrounding communities.