A Brighter Way
A Brighter Way
You already know that your retirement plan requires an audit. All you need is the written audit report from your plan auditors, right? Well, sort of. Audit standards require that certain communications occur between the auditor and plan management. We'll explain the four types of required communications that the auditor may provide.
One of the first communications you will see from your plan auditor is the engagement letter. This letter outlines the duties for which plan management is responsible and those for which the plan auditor is responsible. It also outlines the scope of the audit. This is a communication is required to be signed by a representative of the plan.
Your auditor will ask who is responsible for plan oversight. The auditor is required to conduct certain communications with those charged with plan governance. Two separate communications must be made to this group -- one at the beginning of the audit and one at the end of the audit. This communication can be written or verbal. The communication at the beginning of the audit process outlines the plan audit process. The communication at the end of the audit identifies certain items the auditor may (or may not) have encountered during the audit.
At the conclusion of the audit, the auditor will request that the plan sponsor provide a signed management representation letter. This letter includes certain representations that management is making to the auditor regarding the financial statements and related items of the plan.
If during the audit the auditor finds items, processes or procedures that contain errors or are inadequate to meet Department of Labor or IRS standards, the auditor may issue one of these communications regarding the findings. Determining which type of communication is issued is dependent upon the severity of the nature of the finding. These communications can prove the most valuable because they can help improve plan operations if plan management chooses to take the items in the communications under advisement.
Here is a PDF of a plan advisory issued by the American Institute of CPAs' Employee Benefit Plan Audit Quality Center regarding understanding auditor communications. This plan advisory provides greater detail related to the communications discussed above and also provides references to additional resources. We also encourage you to contact your accounting professional if you have questions about any required correspondence you receive.
Note: This content is accurate as of the published date above and is subject to change. Please seek professional advice before acting on any matter contained in this article.
