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401(k) Plan Audit Sampling

Published by Kim Moore on Aug 2, 2019 6:00:00 AM

When your 401(k) Plan needs an audit, the auditor may provide you with a list of transactions that will need supporting data. These items are called “audit samples”. 

For a selected type of transaction, the auditor will review the total number of transactions available (called the “population”), and based upon theirdoctor_holding_clipboard_17742 (1) analysis of the population, they will select a few items for further review (called “testing”).  The items selected for testing are called sample items.  Testing a sample assists the auditor in verifying the accuracy and completeness of all the items in the total population.  

There are various ways in which your auditor may select the sample.  Methods include:

* Random sampling (in which every item has an equal chance of selection) or

* Attribute sampling (in which the population is segregated based upon characteristics of the items and sampling occurs from these different groupings of transactions). 

In either case, the auditor is using a statistically-based process to verify the precision of the information they are reviewing.  If errors are found in the testing of the sample data, the auditor may be required to add items to their testing.  They may require “replacement” test items or an additional sample of several test items. 

In all cases, you should work with your auditor to provide the requested information or explain why it is not available or not applicable for a test item.

Failure to provide the required information could obligate the auditor to issue a scope limitation in their audit opinion.  These audits do not have “clean” opinions and can cause regulators such as the Department of Labor or IRS to issue penalties against you, the Plan Sponsor or the 401(k) Plan itself.

It’s vital that you hire a trusted auditor when it’s time for your plan's audit. At Summit CPA we specialize in retirement plan audits. We have the ability to offer assistance entirely off-site with little or no distraction to your daily office routine.  We also offer flat-fee pricing so there are no surprises on your bill when the job is complete. For assistance contact our office at (866) 497-9761 to schedule an appointment.

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