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DOL Audit Quality Study Update

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Presentation Slides

1) DOL  Audit  Quality  Study   Update COLLEEN  K.  CONRAD,  CPA,  EXECUTIVE  VP  &  CHIEF  OPERATING  OFFICER MARIA  L.  CALDWELL,  ESQ.,  CHIEF  LEGAL  OFFICER  &  DIRECTOR  OF   COMPLIANCE  SERVICES   © 2015

2) DOL  EBSA  Audit  Quality  Study •â€¯ Released  5/28/2015   •â€¯ Reviewed  400  plan  audits  from  2011  Form  5500  ï¬lings   •â€¯ Six  strata  using  #  of  audits  per  ï¬rm   •â€¯ Random  sampled  within  each  strata   •â€¯ Analyzed  licensing  and  peer  review  status  as  part  of  study   © 2015

3) Key  AQS  Finding Major  GAAS   Deficiencies  -­â€   Reject  Form   5500  (39%)   Compliant  or   Minor   Findings   (61%)   © 2015

4) Trend  of  AQS  Audits  with     GAAS  Deficiencies 45%   40%   35%   30%   25%   20%   15%   10%   5%   0%   39%   33%   23%   1988   19%   1997   2004   2014   Audits  with  GAAS  Deficiencies   © 2015

5) AddiPonal  AQS  Findings •â€¯ 17%  of  audit  reports  didn’t  comply  with  ERISA  reporNng  /   disclosure  requirements   •â€¯ The  smaller  the  ï¬rm’s  EBP  audit  pracNce,  the  greater  overall   deficiency  rate  and  increased  number  of  deficient  audit  areas   •â€¯ Decline  in  quality  appears  to  have  some  nexus  to  increased  #  of   limited  scope  audits   •â€¯ Concern  that  peer  review  and  pracNce  monitoring  efforts  are  not   improving  audit  quality  or  idenNfying  deficient  EBP  audits   © 2015

6) Audits  Containing  5+  Major  Deficiencies   and  Clean  Peer  Reports Strata  (Audits)   Deficient  Audits  w/  5+  Deficiencies     and  Clean  Peer  Review  Report   1-­â€2   3-­â€5   6-­â€24   25-­â€99   100-­â€749   750+   35%  (33)   36%  (34)   37%  (35)   22%  (14)   4%  (1)   4%  (1)   © 2015

7) Audit  Deficiency  Rate  by  EBPAQC  Status     82.30%   100.00%   80.00%   60.00%   40.00%   29.90%   20.00%   0.00%   EBP-­â€AQC  Members   EBP-­â€AQC  Nonmembers   © 2015

8) DOL  RecommendaPons  -­â€  Enforcement   •â€¯ Target  for  inspecNon:   ◦  CPA  ï¬rms  with  smaller  EBP  audit  pracNces  and  larger  $$  of  plan  assets   ◦  CPA  ï¬rms  audiNng  25-­â€99  EBPs  due  to  high  deficiency  rate  and  large  #  of  plan   parNcipants  and  $$  of  plan  assets  at  risk   •â€¯ Work  more  closely  with  NASBA  and  State  Boards   •â€¯ Amend  ERISA  to  allow  penalNes  against  audit  ï¬rms   •â€¯ Peer  review   ◦  Work  with  AICPA  to  streamline  and  improve  peer  review  to  improve  quality   ◦  Ensure  EBP  audit  ï¬rms  undergo  peer  review   ◦  Refer  audit  ï¬rms  without  acceptable  peer  review  to  Boards  of  Accountancy   © 2015

9) DOL  RecommendaPons  –     Regulatory  /  LegislaPve •â€¯  Amend  ERISA  definiNon  of  “qualified  public  accountant”  to   include  addiNonal  requirements  and  qualificaNons   •â€¯  Repeal  limited-­â€scope  audit  exempNon  or  further  regulate   use   •â€¯  Amend  ERISA  to  give  Secretary  of  Labor  authority  to   establish  accounNng  and  audiNng  principles  for  EBPs   © 2015

10) DOL  RecommendaPons  -­â€  Outreach •â€¯ Work  with  NASBA  /  State  Boards  to  encourage  requirement  of   specific  licensing  requirements  for  EBP  auditors   •â€¯ ConNnue  outreach  acNviNes  with  plan  administrator  organizaNons,   plan  administrators,  CPA  ï¬rms   •â€¯ Communicate  results  of  AQS  to  all  Boards  of  Accountancy  stressing   need  to  ensure  only  competent  CPAs  perform  EBP  audits   •â€¯ Expand  outreach  to  state  CPA  socieNes  with  large  number  of  ï¬rms   in  the  1-­â€5  EBP  audit  strata,  encouraging  more  training  programs   © 2015

11) CollaboraPve  Effort… Accountancy   Boards   AICPA   Department   of  Labor   (DOL)   NASBA   © 2015

12) Where  We  Have  Been… Since  2005,  DOL  made  507  rouNne  referrals   481  to  the  AICPA   89  to   BOAs   Over  65%  of  referrals  to  AICPA  conclude   with  issuance  of  confidenNal  RCA  Leier   © 2015

13) DOL  Audit  Quality  Referrals…. DOL  has  made  145  referrals   132  to  the  AICPA   13  to   BOAs   Over  65%  of  referrals  to  AICPA  conclude   with  issuance  of  confidenNal  RCA  Leier   © 2015

14) Outcome  of  Previous  Referral  Process… DOL  is  concerned  about   the  current  system,  but   BOAs  need  to  be  involved   in  ALL  cases   The  BOAs  had  no  real   insight  as  to  the   magnitude  of  the  number   of  deficient  audits   © 2015

15) What  Boards  Have  Done… AcNons  Taken  by  Boards  of  Accountancy   Closed  with  Discipline  (26%)   No  Record  of  Referral  (19%)   Closed  with  No  Data  Available  (10%)   Closed  with  Compliance  (4%)   Deceased  Respondent  (2%)   In  Progress  (23%)   Closed  with  No  ViolaNon  (10%)   Closed  Due  to  Insufficient  Evidence  (5%)   Lack  of  JurisdicNon  (3%)   © 2015

16) How  to  Improve  CollaboraPon  and   Results… Improve  referral     process  to  ensure  the   DOL  referral   informaNon  is  sent  to   the  appropriate   board  contact   All  DOL  referrals   should  be  made  to   the  Boards  going   forward   Use  of  Consents  to   allow  sharing  of   invesNgaNve  ï¬les   with  Boards  by  DOL   Use  of  AICPA/BOA   CooperaNve   Enforcement  Process   AICPA  to  consider   changes  to  AutomaNc   SancNoning   Guidelines  that  are   triggered  upon  Board   acNon   © 2015

17) Next  Steps… ConNnue  dialogue  with   DOL  and  AICPA  to   establish  process  for   making  referrals   Provide  relevant  consent   forms  for  Boards  to  use   when  opening  a   complaint  to  allow  DOL   and/or  AICPA  to  share   invesNgaNve  ï¬les   Work  to  improve   communicaNon  among   the  DOL,  Boards,  AICPA   and  NASBA   Monitor  progress  being   made  on  DOL  referrals   © 2015

18) More  to  Come… Look  for  email  to  EDs   from  NASBA   confirming   appropriate  DOL   referral  contact   NASBA  will  meet  with   DOL  regarding   consents  needed  to   share  ï¬les  and  proper   referral  process   Detailed  informaNon   will  be  shared  with   Boards  on  AICPA/BOA   CooperaNve   Enforcement  effort   Input  from  Boards   will  conNnue  to  be   obtained  and  shared   © 2015

19) QUESTIONS? © 2015