If you have decided on an independent CPA Firm for your upcoming 401(k) Plan audit, you may be wondering how the audit will get started. Is there anything specific that you need to do? The first item the audit firm should work with you on is an “engagement letter”. The engagement letter is a document that defines the responsibilities of both your company and the audit firm regarding the audit. This document outlines the objectives of the project and clarifies the limitations of what the auditor can and cannot complete.
There are several technical items that will be included:
- A description of the expectations regarding the report to be produced at the conclusion of the engagement.
- A statement about the inherent limitations of an audit.
- Identification of the financial reporting framework that is used by the Plan.
- Objectives and scope of the audit.
- Responsibilities of the auditor and management of the Plan.
The engagement letter will outline the responsibilities that you have towards the Plan. This letter will specify that “you” are responsible for the financial statements for the Plan along with the internal controls and actual operations of the Plan.
Your auditor cannot be involved in the day-to-day operation of the Plan. They must remain independent with regard to both the Plan under audit and the Company that sponsors the Plan. Any relationship outside the audit relationship is not allowed per U.S. auditing standards.
The engagement letter should also establish the overall price that you will pay to complete the audit or provide an hourly rate of service. It may include a timeframe for completion.
It’s essential that you carefully read what is included and ask questions if you are unsure of items included or excluded from the engagement letter. This is the written agreement (or contract) between you and the audit firm that you have selected to complete the audit. Once you have ensured you are comfortable with the terms specified in the letter, you should sign and date the letter, keep a copy for yourself and return the original to the audit firm. Then the real work required to complete your 401(k) audit can begin.
Retirement plans can be very complex. As an innovative firm Summit CPA specializes in 401(k) 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.