EBPAQC Auditor Communications: Best Practices and Common Pitfalls Live Forum

1. EBPAQC Auditor Communications: Best Practices and Common Pitfalls Live Forum Webinar Troubleshooting Tips • Disable all pop-up blockers on your computer • You should be able to hear music, if not, you may need to do one of the following: • Verify that the volume on your computer is not muted • If you are in Windows Media Player, please logout and try Real Player • If you are in Real Player, please logout and try Windows Media Player • Most often any audio or video difficulties are at the local user office so you may need to check with your IT administrator • If you are still having difficulties, please let us know by typing your problem in the question box on the left hand side, and a Genesys representative will assist you

2. EBPAQC Live Forum Auditor Communications: Best Practices and Common Pitfalls November 10, 2010

3. Panelists Bob Lavenberg BDO USA, LLP Debbie Smith Grant Thornton LLP Marilee Lau Marilee Lau CPA Carl Kampel Ellin and Tucker, Chartered

4. CPE Credit For Participating • Must have registered for CPE credit prior to this live forum • CPE Credit Approval Form posted on webinar instruction site • Listen for announcement of 4 CPE codes (7 digits: ALL_ _ _ _ ) and 4 polling questions during the live forum • Record CPE Codes on CPE Credit Approval Form (no need to record polling questions) • Return completed form (by fax or mail) to AICPA Service Center for record of attendance • Keep a copy of completed CPE Credit Approval Form for your records

5. Introduction Bob Lavenberg, CPA BDO USA, LLP Chair EBPAQC Executive Committee

6. Objectives • Present best practices tips and common deficiencies related to: • Engagement Letters • Management Representation Letters • Provide an overview of SAS 114 and SAS 115 Communications • Discuss various example control deficiencies under different scenarios

7. Engagement Letters Marilee Lau, CPA

8. Engagement Letters • Establish an understanding with the client in accordance with AU 311 • Document the contractual duties agreed to by the auditor and the client • Explain the auditor’s and the client’s responsibilities • Explain the nature of services to be rendered by the auditor and establish that financial statements are the responsibility of the client • Helps avoid misunderstandings with the client

9. Common Errors • Letter not properly addressed • Letter not sent or obtained before work commences • Scope of audit incorrect • Type of plan is incorrect • Schedule names or inclusion is incorrect • Trustee/custodian not properly identified

10. Common Errors, Continued • Form 5500/electronic filing not addressed • Non-attest services not addressed • Heading on page 2-6 not changed from prior client template • Information in ( ) not addressed • Tailoring for specific situations (e.g., SEC 11-Ks, outsourcing, use of experts, non CPAs)

11. Management Representation Letters Debbie Smith, CPA Partner Grant Thornton LLP

12. Management Representation Letters • Auditor required to obtain written representations from management as part of a financial statement audit performed in accordance with GAAS • Representations are audit evidence, but are not a substitute for application of auditing procedures necessary to express an opinion • AU 333 lists specific representations that should be obtained • If management refuses to furnish written representations that auditor believes are necessary it may constitute a scope limitation

13. Common Errors • Poor tailoring- not specific to plan type, scope of audit (full vs. limited), etc. • Contradictory- with other audit evidence and/or financial statement disclosures • Doesn’t cover all financial statements and periods covered by auditor’s report • Incorrectly dated- should be dated as of the date of the auditor’s report • Not signed by appropriate individuals (e.g., those responsible for financial and operating matters)

14. Overview of SAS 114 and SAS 115 Communications Carl Kampel, CPA Partner Ellin and Tucker, Chartered

15. Overview Statement on Auditing Standards No. 114, The Auditor’s Communication With Those Charged With Governance (AU 380)

16. Beginning of the Audit • The auditor’s responsibility under generally accepted auditing standards (GAAS) • Responsible for expressing an opinion on the financial statements or explanation of limitations of the auditors ability to express an opinion • The planned scope and timing of the audit

17. Beginning of the Audit, Continued • Approach to internal control • Service provider controls • User (plan sponsor) controls • Risk assessment • Division of responsibilities • Financial statements and notes – plan sponsor • Auditor’s report – auditor • Materiality

18. End Of The Audit • Qualitative aspects of accounting policies, practices, estimates and disclosures • Any serious difficulties in completing the audit or disputes with management • Unavailability of expected information • Restrictions imposed by management

19. End Of The Audit, Continued • Qualitative aspects of accounting policies, practices, estimates and disclosures • Any serious difficulties in completing the audit or disputes with management • Unavailability of expected information • Restrictions imposed by management

20. Overview Statement on Auditing Standards No. 115, Communicating Internal Control Related Matters Identified in an Audit (AU 325)

21. Communications • Auditors are required to obtain an understanding of internal control and may become aware of deficiencies, which will be communicated to those charged with governance • Deficiencies in internal control – A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis

22. Form of Communications • With those charged with governance • Internal control related matters

23. Required Communications • Significant deficiencies – a significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance • Material weaknesses – a material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the Plan’s financial statements will not be prevented, or detected and corrected on a timely basis

24. Example Control Deficiency # 1 Plan sponsor does not have the ability to prepare or review the financial statements

25. Example Control Deficiency # 2 Plan sponsor has outsourced the administration functions of the plan with no oversight by management

26. Example Control Deficiency # 3 SAS No. 70 report with significant testing exceptions that are not mitigated by controls at the plan sponsor

27. Example Control Deficiency # 4 Lack of controls when changing service providers and ensuring proper information has been transferred to the new service provider

28. Example Control Deficiency # 5 For plan mergers, the recording of net appreciation and transfer amounts may be incorrect due to timing of the accounting for the merger

29. Example Control Deficiency # 6 Improper valuation of investments, especially alternative investments

30. Example Control Deficiency # 7 Plan management does not have the ability (methodology and process) to determine reasonableness of actuarial assumptions

31. Example Control Deficiency # 8 IBNR is not accurately calculated or recorded

32. Example Control Deficiency # 9 Benefit payments are not calculated in accordance with plan documents

33. Example Control Deficiency # 10 Lack of performance of tax compliance testing such as discrimination testing or lack of taking appropriate corrective action when errors are found in such testing and other operational errors

34. Example Control Deficiency # 11 Prohibited transactions such as timeliness of employee contributions or improper transactions with parties-in-interest and fiduciaries

35. Resources • EBPAQC Plan Advisory, Understanding Auditor Communications • EBPAQC SAS No. 115 Tools and Resources: • Examples of Internal Control Communications for Employee Benefit Plans • Summary of SAS No. 115 Requirements • SAS No. 115 Frequently Asked Questions

36. Question and Answer Session

37. Coming Events Mark Your Calendars! • Upcoming EBPAQC Live Forum Webinars: • Designated Partner Live Forum—2011, January 19, 2011, 1:00-3:00 pm ET • Managers & Supervisors Live Forum—2011, January 26, 2011, 1:00-3:00 pm ET • 11-K Audits Live Forum, March 16, 2011, 1:00-3:00 pm ET • Upcoming AICPA Conferences: • December 13-14, 2010, EBP Accounting, Auditing and Regulatory Update, Omni Shoreham Hotel, Washington, DC • May 2-4 2011, National Conference on Employee Benefit Plans, Aria, Las Vegas, NV

38. Wrap Up Consider using the EBPAQC Member-to-Member Forum

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40. Thanks for Participating!