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How Should You Review Your 401k Plan Audit Report?

Published by Kim Moore on May 24, 2021 6:00:00 AM

Final Steps of an Audit Report

If you are nearing the end of your first 401(k) Audit, one of the final steps in the process is for your auditor to provide a draft set of financials and an opinion letter to you for review. You are probably asking yourself, “What do I do with this?” Here are some guidelines to help in your review:

  • The package that your auditor provides should have a few basic components:

    1. Opinion Letter from the Auditor.

    2. Financial Statements including:
      1. Statement of Net Assets Available for Benefits
      2. Statement of Changes in Net Assets Available for Benefits

    3. Footnotes describing major Plan provisions
      401(k) Audit Report
    4. Supplemental Schedules
      1. Schedule of Assets Held is required
      2. Other schedules as needed

  • Here are some steps to help in your review of the reporting package:
        1. Review the opinion letter and look for the actual opinion. It will say either unqualified, qualified, disclaimer, or adverse. If the opinion is anything other than unqualified, you should ask the auditor to explain why they used the opinion that is shown. Also, review the opinion letter and ensure it covers the right period of time and has the right Plan name, etc.

        2. Look for any obvious errors. Many 401k plans are allowed to be conducted for 2020 plan years as disclaimer opinion reports. This is fine as long as the reason for the disclaimer is that the auditor was able to obtain an asset certification covering the investments in the plan. Any other type of disclaimer opinion will not be accepted by the Department of Labor. Please note that audit standards in this are changing so discuss any disclaimer opinions with your auditor to make sure it is being handled correctly.

        3. The financial statements show the financial position of the Plan at the end of the year and how the plan assets changed from the end of the previous year to the end of the year being audited. Look for any unusual items and verify the ending balance agrees to Plan reports that you have in the Plan files.

        4. The footnotes should describe the basic operations of the Plan. Question anything that you don’t believe is correct. The financial statements and footnotes are your documents so the auditor should not change them for a reason you don’t understand or support.

  • Other items to verify include:
        1. Match the total assets held on the supplemental schedule to the financial statements.

        2. Verify the amounts in the financial statements match the Form 5500 figures or review a reconciliation footnote describing the variances.

        3. Review any subsequent event footnotes for accuracy.

Your auditor will appreciate a thorough review of the information and will not mind any questions you ask for clarification. They want to make sure the information is accurate and complete as much as you do.

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At Summit CPA understands that Plan administration can be a huge burden to companies especially with all the complexities added due to the pandemic. However, don’t let your guard down regarding your 401(k) Plan. It is an important responsibility of the Plan fiduciaries to ensure compliance at all times. A review of current compliance and administration now will help make things a little less stressful. For more information on how we can help, contact our office at (866) 497-9761.

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