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Review Asset Certification–Get Ready for Your 2021 401(k) Audit

Published by Kim Moore on Dec 2, 2021 6:00:00 AM

If you need an audit of your 401(k) Plan for the calendar year 2021 plan year, there is a change coming that we want to make sure you are aware of. Beginning for plans with year ends after December 15, 2021, a new audit standard is required for use by audit firms conducting the year end audit. There are many changes that come into play but the one that will impact your Plan and audit first, relates to work required by the Plan Administrator to initiate the audit. The new standard requires Plan management to evaluate the type of audit needed and then to work with their chosen auditor to ensure that type of audit is completed.

There are 2 types of audits:

  1. 103(a)(3)(C) is the first type. You may know it as a limited scope audit. In this type of 401(k) Plan audit, the auditor is able to rely upon an asset certification to limit the work conducted related to the investments in the Plan and the related gain or loss associated with those investments during the year.

  2. Non 103(a)(3)(C) is the second type of audit. This has been referred to as a full scope audit in the past. In this case, an asset certification is usually not available, and the investments must be fully audited.

To get started with the new requirement, you should first obtain (if you don’t already have one) a copy of the asset certification. If the 2021 certification is already available, that’s great. You will be able to do the complete review for the current year. In most cases, however, the 2021 certification will not be available for a few months. We recommend using the 2020 asset certification for your review purposes. If you don’t have a copy or aren’t sure what the certification document is, check with your service provider or auditor. They should be able to provide you a copy.

You will want to review for the following items:review assets unsplash

  1. Who issued the certification? For it to be valid, it should have been issued by a bank, insurance company or trust company. Certifications issued by a broker-dealer cannot be used.

  2. Does the certification cover the full year? This is unusual, but if you note this, check back with your service provider. It may mean the certification cannot be used.

  3. Does the certification name your Plan? Is it signed by a representative of the issuing company? Both should be in place. Again, if not check with your service provider.

  4. Does the certification cover all the Plan assets? You will usually need to review the reports that the certification is referring to. If not, you will want to discuss this issue with your auditor. The circumstances and actions taken can vary here, based on each individual situation.

  5. Does the certification include the language “complete and accurate”? There is very specific wording that is needed for the certification to be valid.

Any major changes?

If all of the above are addressed properly in the certification, the next item to consider is whether any major changes have occurred since last year.

  1. Did you change service providers?

  2. Did you change investment options for the Plan?

  3. Did you sign any new agreements with the service provider?

  4. Any of these situations could change your overall assessment based on the prior year certification.

Once you have reached a conclusion about the certification, you’ll want to meet with your auditor and review it. They may have additional questions for you to research. They also, along with the company that prepared the certification, can be very helpful to guide you through the review process and answer questions that will come up along the way. Please note that the auditor cannot begin their work on your 2021 Plan audit until this process is complete so the sooner the process is started the better.

New Call-to-actionAt 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.

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