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 managers 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 investment information that is prepared and certified by the trustee or custodian. This information typically includes details on investments, investment income and related expenses.
Here, a qualified institution is a bank, insurance carrier 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).
With a limited-scope audit, auditors are not able to express a formal 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 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.
Holtzman Partners has extensive experience with employee benefit plan audits. Please don’t hesitate to contact a member of our EBP audit team at 512.610.7200 if you have questions about your audit scope options.