Audits of 401(k) Plans, 2nd Edition

Chapter 1 1-1

Introduction and Background 1-1

Background Information 1-2

Operation and Administration 1-5

Accounting Records 1-7

Reporting Standards 1-9

Governmental Regulations 1-10

Audit Requirements 1-11

Reporting and Disclosure Requirements Under ERISA 1-15

SEC Form 11-K Filing Requirements 1-16

ERISA Limited-Scope Audits 1-17

Chapter 2 2-1

Planning 2-1

Pre-Engagement Activities 2-3

Audit Planning 2-6

Communication and Coordination 2-10

Understanding the Plan and Its Environment, Including Its Internal Control 2-11

Audit Documentation 2-13

Preliminary Analytical Review Procedures 2-14

Audit Risk Factors 2-15

Internal Control Structure 2-24

Consideration of Fraud 2-25

Plan’s Use of Third-Party-Party Service Organizations 2-31

Party in Interest Transactions 2-32

 Plan’s Use of Voice Response or Internet Recordkeeping System 2-34

Accounting Estimates 2-35

Going Concern Considerations 2-36

Chapter 3 3-1

Internal Control Structure 3-1

Understanding Internal Control 3-3

The Components of Internal Control 3-5

Acquiring Knowledge of the Controls 3-7

Assessing Control Risk 3-8

Plan’s Use of Third-Party Service Organizations 3-9

Plan’s Use of Voice Response and Internet-Based Recordkeeping Systems 3-14

Documentation 3-15

Communicating Control Deficiencies 3-16

Chapter 4 4-1

Auditing the Statement of Net Assets Available for Benefits 4-1

Accounting Guidance 4-3

Listing of Investments 4-5

Valuation of Investments 4-6

Investment Options 4-7

Audit Objectives 4-10

Audit Procedures 4-11

Investments in Master Trusts and Similar Vehicles 4-13

Investments in Registered Investment Companies (Mutual Funds) and Common or Commingled Trust Funds 4-14

Investments With Insurance Companies 4-16

Direct Filing Entities (DFE) 4-21

Other Investments 4-22

ERISA Limited-Scope Auditing Procedures 4-25

Contributions Receivable 4-27

Notes Receivable From Participants Receivable 4-28

Cash Balances 4-30

Other Assets 4-31

Accrued Liabilities 4-32

Chapter 5 5-1

Auditing the Statement of Changes in Net Assets Available for Benefits 5-1

Investment Income 5-3

ERISA Limited-Scope Audit 5-7

Investment Expenses 5-8

Contributions From Employers 5-9

Individual Participant Accounts 5-12

Participant Eligibility 5-16

Contributions From Other Identified Sources 5-17

Withdrawals 5-18

Loans 5-19

Administrative Expenses 5-21

Chapter 6 6-1

Other Auditing Considerations 6-1

Plan Tax Status 6-2

Testing for Discrimination 6-6

Consequences of Violations 6-7

Failure to Pass Nondiscrimination Tests 6-8

Commitments and Contingencies 6-9

Subsequent Events 6-11

Representations From Plan Management 6-13

Illustrative Attachment to Management Representation Letter 6-17

Form 5500 and Supplemental Schedules 6-20

Information for Supplemental Schedules From Trustee or Custodian 6-27

Terminating Plans 6-31

Plan Mergers 6-34

Party in Interest Transactions 6-35

Initial Audit of the 401(k) Plan 6-40

Form 11-K: The Sarbanes-Oxley Act of 2002 6-42

Communication With Those Charged With Governance 6-45

Chapter 7 7-1

The Auditor’s Report and Financial Statement Disclosures 7-1  

The Auditor’s Report 7-4

Standard Report 7-6

Additional Communications: Emphasis-of-Matter and Other-Matter Paragraphs 7-8

Modified Reports 7-10

Non-GAAP Basis Financial Statements 7-12

Reports Filed Pursuant to the SEC Form 11-K 7-14

ERISA Limited-Scope Reports 7-17

Financial Statement Disclosures 7-20

Appendix A A-1

ERISA and Related Regulations A-1

Appendix A A-3

Glossary 1

Index 1

Solutions 1

Chapter 1 Solutions 1

Chapter 2 Solutions 3

Chapter 3 Solutions 4

Chapter 4 Solutions 6

Chapter 5 Solutions 8

Chapter 6 Solutions 9

Chapter 7 Solutions 13