As permitted under ERISA, a plan administrator is permitted to instruct their auditor not to perform any auditing procedures with respect to the information prepared and certified by a qualified institution. A qualified institution is a bank or similar institution or an insurance carrier that is regulated, supervised, and subject to periodic examination by a state or federal agency.
When performing a limited scope audit of the financial statements, the auditor need not perform any auditing procedures with respect to information that was certified including investments and investment income, as well as participant loans and the related interest income. With a limited scope audit, the auditor will continue to test participant data, including the allocation of investment income/losses to individual participant accounts, contributions, benefit payments and other information that was not certified.
Limited Scope Audit Exemption
As the plan administrator, it is your responsibility to verify that the conditions of the limited scope audit exemption has been met. This includes determining if the certification is from a qualified institution and signed by an authorized person, and that the investment information is certified as both complete and accurate. If the certification is unacceptable, a full scope audit would need to be performed.
In addition, you would need to determine that all investments have been covered by the certification. If certain investments were not included in the certification, full scope procedures would need to be performed on those investments and related income but the limited scope audit exemption would still apply to those investments covered under the certification.
Disclaimer of Opinion
The limited scope audit exemption prohibits the auditor from providing an unqualified opinion on the plan’s financial statements.
The auditor’s opinion for a limited scope audit is called a Disclaimer of Opinion because sufficient work has not been performed to form an overall opinion on the financial statements. This type of opinion will not have any adverse consequences, as a disclaimer under these regulations is acceptable to the Department of Labor.
Plan administrators often believe that once they have contracted with an auditor to perform a limited scope audit that their obligations are satisfied. But as part of their fiduciary duty, it is very important that the plan administrators understand the requirements of a limited scope audit and verify that these requirements have been met.
To learn more about limited scope audits, visit our employee benefit plan audit services. Contact us at firstname.lastname@example.org.