AICPA Making Efforts to Enhance Plan Audit Quality

A study by the DOL has alerted the AICPA to some issues with retirement plan financial audits.

The U.S. Department of Labor (DOL) is wrapping up a study of employee benefit plan audit quality, with a report expected soon.

The department hasn’t said much publicly aside from indicating the study is in the works and a report is forthcoming, says Sue Coffey, the American Institute of Certified Public Accountants’ (AICPA’s) senior vice president for public practice and global alliances. However, the DOL has said it is apt to report that one-third or so audits have quality issues. “Poor audit work is a concern to us. It is unacceptable. It is something we take very seriously,” she tells PLANSPONSOR.

The AICPA is in the process of executing reforms in the next six to 18 months. According to Coffey, some efforts were started before the DOL did its study, but some are a result of what is expected to come out in the study report. Ian McKay, director of federal regulatory affairs at AICPA, who oversees the institute’s Employee Benefit Plan Audit Quality Center, says the institute sometimes finds issues during its own practice monitoring.

In its most recent holistic review of all pieces that go into audits and inform audit quality, the AICPA performed a practice analysis on the CPA exam—something it does every six years or so—to make sure the exam is testing the right information and sets the appropriate bar for individuals who will do that type of work. Coffey says in 2017, the institute will be rolling out a new exam with new content and a new technology platform to not only test individuals’ knowledge but their competency.

She adds that this month, the institute is issuing a competency framework for employee benefit plans. It will help practitioners assess whether they have the competency needed for employee benefit plan financial audits and, if not, what curriculum they need to gain competency.

And, early next year, the AICPA will be launching an employee benefit plan certificate program to allow practitioners to show their competency.

McKay explains that there are firms challenged with following all audit processes; they should reevaluate whether they are qualified to perform employee benefit plan financial audits. “Just because they audit one type of plan, they may not be able to audit all types of plans,” he adds, noting that plan sponsors should evaluate whether an auditor has experience and training in auditing plans of the type they sponsor. (See “The Importance of Hiring a Skilled Plan Auditor.”)

Coffey says the AICPA supports practitioners in their businesses, and the DOL has said that members of the institute’s audit quality center perform better than those who are not members. “Just last year, we launched the Center for Plain English Accounting, to aid small-firm practitioners,” she adds.

Among its efforts, the AICPA is monitoring the use of the Auditing Standards Board’s new clarified auditing standards to ensure they are being consistently understood and implemented to achieve high-quality audits. The institute is trying to identify and better understand where and how audit issues occur and their root causes so revisions can be made to the appropriate standards and/or guidance, Coffey says.

In December, the AICPA issued a concept paper to get stakeholder input about practice monitoring and peer review. The comment period ends in June, and Coffey says the institute will evaluate the input and use it to refine its concept. The AICPA has a vision of taking advantage of technology to perform real-time monitoring of auditing engagements to hopefully find issues before an audit report is completed.

As currently designed, the concept would be powered by five activities:

  • Continuous analytical evaluation of engagement performance;
  • Human review when system-identified concerns are raised;
  • Involvement of external monitors, when necessary;
  • Periodic inspection of system integrity; and
  • Oversight of the system’s operating effectiveness.

Finally, the AICPA is enhancing its ethics enforcement. “For a very long time, we have had a cooperative referral relationship with the DOL; when they find deficiencies, they make referrals to our ethics division and we aggressively investigate,” Coffey says. “We are validating what the DOL found, and are remediating and disciplining members. When we discipline members, we make referrals to state boards.”

Coffey couldn’t share details of what will be revealed in the upcoming DOL report, but said the issues identified in the study do not put plan participants at risk. She notes that audits of employee benefit plans that account for 90% of plan assets have few quality issues, and the AICPA’s enforcement efforts to date have not found instances in which plan assets to pay benefits are materially wrong.