Businesses might question whether they need to conduct a full scope financial audit when planning for their retirement plan or 401(k) audit. Companies need to determine if their options and their plan require an audit. When people fail to comply with audit requirements, they can get into a host of long-term complications for their businesses.
Does a Company’s Retirement Plan Require an Audit
Subject to the IRS and US Department of Labor regulations are the retirement plans. These agencies must ensure proper management of the investors and their protection. Typically, as of a plan year’s first day, there is a requirement of an audit for qualified benefit plans with 100 or more eligible members. Whether qualified participants contribute or not, they treat each employee as an eligible member as they are eligible to contribute to the plan. Also considered suitable are the separated participants, retirees, and deceased participants’ beneficiaries that are getting the benefits or eligible to get benefits. There are complicated and strict regulations around 401(k). It can also result in litigation and expensive fines where there is non-compliance. Companies and organizations need the trust of an efficient and experienced auditor for advice throughout the audit process to prevent complications.
Which is Right? Limited vs. Full Scope Audits
Full Scope Audits
The auditors perform work on the plan’s investments when it comes to a full scope audit. Part of the process is to send confirmations to the insurance company, trustee, or custodian to verify investment ownership. This confirmation will also have investment income, investment transactions, and investment valuations with it. The accounting company that handles the full scope audit will also provide an independent auditor’s recommendation on the plan’s financial statements. They will file the financial statements, independent auditors’ report, and necessary schedules with the Department of Labor. Except for any requested extension, the filing is due on the last day of the 7th calendar month at the end of the plan year.
Limited Scope Audits
A bank or insurance carrier needs to act as the custodian or trustee for the plan to be eligible for a limited scope audit. This entity has to be subject, supervised, and regulated for examination and needs to be federally and state-chartered. Part of the process is for the trustee to confirm the completeness and accuracy of any investment information. For some people, the limited scope audit tends to be an ideal option. This case is they typically have fewer areas subject to audit testing and lower fees. Participants need to understand that the accounting firm charged with performing a limited scope audit may not provide an unqualified recommendation on the plan’s financial statements. An independent auditor’s report is an unqualified opinion that someone’s financials are accurately and fairly presented. They refer to it as a Disclaimer of Opinion when it comes to reports that accompany limited scope audits.
Essential for mid-size and small businesses is to plan for the appropriate full or limited scope audit of their 401(k) plan. They must consult with their local accounting firm to discuss their audit concerns and determine the perfect options for their unique needs.