A proper financial statement audit is a critical component of an employee benefit plan’s accountability. The following tips can help plan administrators hire an auditor who will perform a high-quality audit.
Prepare a request for proposal (RFP). A comprehensive RFP will help plan administrators compare audit firms’ qualifications. This document should communicate the facts and conditions about the engagement, state objectives and requirements, specify the information needed to properly evaluate the proposal, and require the proposal to be presented in a common format for efficient and effective evaluation and comparison.
Verify independence. The U.S. Department of Labor (DOL) has issued regulations for determining when an auditor is independent of the plan. Auditors also are required to follow independence rules established by the AICPA; SEC and PCAOB independence rules also apply for plans that file a Form 11-K. Auditors of employee benefit plans should not have any financial interests in the plan or the plan administrator that would affect their ability to render an objective, unbiased opinion about the plan’s financial condition. The DOL will not consider an auditor to be independent with respect to the plan if the audit firm or any of its employees maintain the plan’s financial records.
Check on licensing. Federal law requires that an auditor engaged for an employee benefit plan audit be licensed or certified as a public accountant by a state regulatory authority. Most states make information available online that will allow the plan administrator to investigate whether the firm holds a valid and up-to-date license or certificate to perform auditing services.
Look for EBP-specific experience and continuing education. One of the most common reasons for deficient accountants’ reports in EBP audits is the failure of the auditor to perform tests in areas that are unique to EBP audits. Auditors with more experience and continuing education in this specialty will be more familiar with how employee benefit plans operate and the auditing issues that are unique to this area.
Obtain and check references. Discuss the auditor’s work with other EBP clients that have used the same auditor.
Select finalists. Perform separate evaluations of each proposal received based on technical criteria and price. Price should be considered only after the technical evaluation is complete. Remember, the lowest price does not guarantee a quality audit.
Interview finalists. Once you have identified finalists, invite each firm to present and discuss its proposal letter. This can help you gauge the firm’s insight into the EBP sector as well as how the firm would work with you and others involved in the audit.
Document the agreement. The auditor will send an engagement letter to document the agreement in writing. Consider seeking the advice of legal counsel on the form and substance of the document.
This checklist is based on information available in The Importance of Hiring a Quality Auditor to Perform Your Employee Benefit Plan Audit, a resource prepared by the AICPA Employee Benefit Plan Audit Quality Center. More information is available at tinyurl.com/oxv7xua.
—By Ken Tysiac (firstname.lastname@example.org), a JofA editorial director.