When you own a business that offers employees a 401(k) or other retirement plans, it’s a good bet that there may be an audit in your future. The question is, what kind of audit will be needed for your plan? Will you need a full scope or a limited scope audit for your plan?
WHAT IS A LIMITED SCOPE AUDIT?
A limited scope audit (LSA) covers a full year period and all plan operations but requires less audit work related to the investment year-end balances and investment income. A limited scope audit can be done if an asset certification from a qualified institution will be available.
In many cases the limited scope is an option for plans but they must verify that before the audit begins.
WHAT IS A FULL SCOPE AUDIT?
The full scope audit (FSA) includes the same items as the limited scope audit but also includes full testing in the investment area over year-end balances and investment income. If a certification from a qualified institution is not available, a full scope audit must be done.
A full scope audit requires more work, therefore increases the overall fees for the audit.
DO YOU NEED A LIMITED SCOPE AUDIT OR A FULL SCOPE AUDIT?
To determine which audit you need, you will need to establish who holds your investments. If your 401(k) plan investments are held by a regulated trust company, a bank, or an insurance company, you may be allowed a limited scope audit.
These three institutions are qualified to certify the accuracy and completeness of your plans investment information. However, broker and investment companies are not qualified to certify plan investments for a limited scope audit.
It may be necessary to have multiple certifications when plan investments are held by more than one insurance company, custodian, or trustee.
DOES THE SEC ACCEPT LIMITED SCOPE AUDITS?
No matter who holds the investments, plans registered and filed with the SEC will need a full scope audit performed. The reason for this is that the SEC does not find a limited scope audit acceptable.
Hiring a CPA firm that specializes in 401(k) auditing will make a difference in how smoothly your audit goes. Utilizing modern technology, it is possible to assist you entirely “off-site”, and with little or no distraction to your daily office routine. At Anders CPAs + Advisors we also offer flat-fee pricing for 401(k) audits so there are no surprises when you receive your bill.All Insights