New Audit Risk Standards
New Audit Risk Standards
Generally, company sponsored employee retirement plans with more than 100 participants at the beginning of the plan year are called “large plans” and are subject to annual audit requirements. This requirement is part of the Form 5500 return.
For plan years beginning on or after December 15, 2006, the accounting profession added eight new Statements on Auditing Standards. The goal of the new standards is simple: to maintain the integrity of the audit process by responding to the evolving needs of financial statement users.
What the New Standards Mean for Audit Clients
The impact the new standards will have on individual audit engagements will vary depending on the procedures the audit engagement teams have performed in the past for the plan. Many organizations will see a dramatic change in the work performed by their auditors. In general, audit clients should expect their auditors to:
- Perform more work to gather information and form an understanding of the plan and its environment
- Perform more extensive procedures to evaluate internal control design
- Involve more experienced audit personnel in gathering information about the plan and its internal control
- Clarify the organization’s responsibilities with regard to performing the plan’s functions, preparing the financial statements and overseeing the financial reporting process
Because the new audit standards now require auditors to perform more extensive procedures to evaluate internal control design, and use this knowledge to develop customized risk-based audit procedures, auditors may require more time to be scheduled for fieldwork. Additionally, management and other applicable personnel may be asked to contribute to the information gathered by the auditors in a much more involved way.
More effective audits are expected to result from better risk assessments and improved design of audit procedures to respond to those risks. The goal of the new standards, to maintain the integrity of the audit process by responding to the evolving needs of financial statement users, will be furthered by these comprehensive audit changes.
We recommend you contact your auditor to discuss the new standards and how they will impact the timing of your audit. Remember the audit must be filed with the annual Form 5500 Large Plan Filing.