On May 28, the U.S. Department of Labor (DOL) released its most recent study on audit quality for employee benefit plans (EBP), showing a 39 percent rate of major deficiencies. The VSCPA has been working closely with the American Institute of CPAs (AICPA) and other state and national accounting organizations on a profession-wide audit quality initiative. Click here to view the full study (PDF).
The DOL studied 400 EBP audits from 2011 and found that just 61 percent of audits fully complied with Generally Accepted Auditing Standards (GAAS) or had only minor deficiencies. Deficiency rates increased in firms that performed fewer EBP audits, with major deficiencies reported at a 76 percent rate for firms that audit only one or two plans.
While these rates are unacceptable, the audit quality issues identified by the DOL, in and of themselves, do not affect the stability or viability of any EBP. The results reflect on the process by which the auditor reviewed a plan, not the plan itself. Issues related to audit quality have never affected the ability of a plan to provide funds to participants.
The DOL offered 11 recommendations to improve EBP audit quality, including expanding the authority of the U.S. Secretary of Labor to establish standards, requirements and qualifications for auditors and assess civil penalties under the Employee Retirement Income Security Act (ERISA). Other DOL recommendations include:
- Repealing the limited-scope audit exemption
- Communicating with EBP administrators to stress the importance of hiring qualified auditors
- Working with the National Association of State Boards of Accountancy (NASBA) to improve investigation and sanctioning processes for EBP auditors, including the addition of specific licensing requirements for said auditors
- Working with the AICPA peer review staff to make the peer review process more responsive to issues that affect EBP audit quality
In the tradition of a profession known for regulating itself, the VSCPA and the rest of the profession are committed to improving upon those results, which affect the reputation of all CPAs, whether or not they perform EBP audits. Profession-wide initiatives already in place through the efforts of the AICPA and its partners include:
- The AICPA’s Center for Audit Quality, which focuses on audits under the purview of the Public Company Accounting Oversight Board
- The AICPA’s Enhancing Audit Quality initiative, which provides similar tools, resources and best practices for auditors of private companies, including its 6-Point Plan to Improve Audit Quality (PDF)
- More specific to this issue, the AICPA’s Employee Benefit Plan Audit Quality Center, a resource for firms that perform, or are interested in performing, EBP audits
- The AICPA’s Future of Practice Monitoring initiative and concept paper (PDF), focused on peer review and the way the profession polices itself
The VSCPA held complimentary EBP Audit Quality Town Halls at various locations across the state to keep members informed on the initiative. Click here for updates from experts including Ian Dingwall of the DOL, Virginia Board of Accountancy (VBOA) Executive Director Wade Jewell and Jim Brackens, CPA, of the AICPA.
The VSCPA is also inviting local firms to participate in discussions about audit quality. Watch for details as they become available.
The VSCPA joins the AICPA and other professional groups as they continue to propose and promote necessary changes. The Society is committed to supporting regulation of Virginia CPAs that will help ensure the highest standard of audit quality. The VSCPA is confident in the steps already underway and in the works that address quality issues and ask you, as the Society’s members, colleagues and stakeholders, to wholeheartedly join in this effort.