If you are the Plan Sponsor of a 401k Plan that requires an annual audit and you have subscribed to our blog posts or podcasts in the past, you should be aware that there is a new audit standard that comes into effect for auditors for the 2021 calendar year plans. In this blog post, we want to cover one change area that may impact your upcoming plan audit.
As you are probably aware, obtaining a copy of the Form 5500 is a standard part of every 401k plan audit. The auditor must ensure that the form has been created and will be ready for filing once the audit is completed. They will verify that information such as the Plan name, address, filing numbers (EIN number and plan number) are correct. They will review general information about the investments shown and other components depending on the type of plan that you have. Most importantly, they will review in detail the information shown in Schedule H which addresses the financial information for the Plan year, shows the audit opinion granted for the audit and also contains the required compliance questions for the Plan with the answers.
The new standard does not change any of the above. It is very specific about the auditor’s responsibility to review the form, however, so if your auditor has not completed that task in the past, you will want to make sure going forward that they obtain a copy as part of their document request process. Something that is new to the process, however, is that the auditor must have a copy of a “substantially complete” Form 5500 before they conclude their work and issue a draft audit report and management representation letter to you.
This may not sound like much of a change, but we expect it may cause delays in the filing of your final audit and Form 5500. If the auditor identifies changes that are needed to the form, they will have to wait to wrap up the audit until they receive that final form. Sometimes, this can take a few weeks depending on your service provider.
We recommend you communicate with your auditor that you are aware of this potential issue and ask that they request (or you should provide) the initial draft of the Form 5500 as soon as possible so they have time to review it and request any changes. Also, you should discuss the timing with your service provider to ensure they can turn around changes quickly to avoid any fines or penalties from the Department of Labor for late filings.
We understand that the new audit standard will cause changes to the audit process, and this can be difficult to navigate. We recommend early communication on all the upcoming changes to make sure everyone is prepared and there are no surprises once the audit starts.
At Summit CPA we specialize in retirement plan audits. If you would like to discuss our audit process in more detail or need an audit contact our office at (866) 497-9761 to schedule an appointment. We can help you navigate the world of the 401(k) audit as proficiently as possible. We also offer off-site assistance and flat-fee pricing so there are no surprises when the job is complete.