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RISK ASSESSMENT STANDARDS - A LOOK BACK AT THE INITIAL IMPLEMENTATION YEAR Diane Wasser, CPA Amper, Politziner & Mattia, LLP Western Pension & Benefits Conference November 21, 2008
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RISK ASSESSMENT STANDARDS -A LOOK BACK AT THE INITIAL IMPLEMENTATION YEAR
Diane Wasser, CPAAmper, Politziner & Mattia, LLP
Western Pension & Benefits ConferenceNovember 21, 2008
RISK ASSESSMENT STANDARDS
What did we gain? Effective Planning Better understanding of clients Better understanding of controls Linkage – risks and audit procedures More forms! Efficiency?
RISK ASSESSMENT STANDARDS
What really surfaced from risk
brainstorming?
Better interaction amongst engagement teams
Understanding of assertions
Audit approach changes
Risk determination
• Plan transfers, increased rollovers, plan expenses
RISK ASSESSMENT STANDARDS
Applying the Audit Risk Model Gather Information about the Plan and its
environment, including internal control Understand the Plan and its environment,
identify what could go wrong Assess the risk of material misstatement; risk
identification and description; consideration of significance and likelihood
Design overall responses and further audit procedures
RISK ASSESSMENT STANDARDS
Understand the design and implementation of internal controls on every audit
Walkthroughs
ALSO assess the operating effectiveness if placing reliance on the controls and thus testing controls
RISK ASSESSMENT STANDARDS
Applying the Audit Risk Model Gather Information and understand the Plan and its
environment 2008 market volatility will impact planning in regards
to this understanding and general economic conditions
• impact of market risk on all plans • consideration of discount rates for DB Plans• funding requirements for DB Plans• impact of market conditions on Plan Sponsors
• timeliness issues
RISK ASSESSMENT AND AUDIT STRATEGY
Key areas to consider in a plan audit when assessing risk: Plan governance Contributions received and receivable Participant account activity (contributions,
distributions, allocations.) Expenses (DOL substandard audit area) Investments, existence of alternative investments Plan changes; Plan sponsor changes Competence of third party service providers and plan
personnel Prior period misstatements
RISK ASSESSMENT AND AUDIT STRATEGY
Assessment of risk of material misstatement is addressed as it relates to:
Financial statement-level risks and Assertion-level risks
RISK ASSESSMENT AND AUDIT STRATEGY
Financial statement-level risks: Relate pervasively to the financial
statements taken as a whole
Affect many relevant assertions
Addressed in terms of the materiality determined at the financial statement level
RISK ASSESSMENT AND AUDIT STRATEGY
Identify risks relating to structure and governance
Does the plan have a complex operating structure or design?
Multiemployer plan
Plan merger
Changes in plan management or service providers
RISK ASSESSMENT AND AUDIT STRATEGY
Plan governance
Powerful impact on Plan operations and the Plan audit
Same service providers and different levels of governance amongst plans impacts risk
RISK ASSESSMENT AND AUDIT STRATEGY
Identify risks related to the plan sponsor’s: Financial condition Economic environment Specific plan investments Financial reporting Information technology Personnel New developments in accounting or industry
RISK ASSESSMENT AND AUDIT STRATEGY
Relevant assertion-level risks – risks of material misstatement relating to specific:
Classes of transactions (did the activity in participant accounts actually occur during the period covered by the financial statements, etc.)
Account balances (investments, receivables, payables) and disclosures
Disclosures
RISK ASSESSMENT AND AUDIT STRATEGY
Audit areas encompass the related account balances, transaction classes and disclosures
Major audit areas include:
Material account balances (investments, contributions receivable)
Material transaction classes based on size or volume of transactions (participant level activity)
Susceptibility to fraud Areas usually requiring audit adjustments
RISK ASSESSMENT AND AUDIT STRATEGY
Risk assessment should identify significant risks which are risks that require special audit consideration:
Significant risks arise on most audits Fraud risks are normally significant risks
RISK ASSESSMENT AND AUDIT STRATEGY
• Areas with potential significant risk in a Plan audit could be:– Investments without readily determinable market value– New investments– Operational Defects– SAS 70 Errors– Non routine transactions– Completely paperless transactions– Timeliness of deposit of participant deferrals– Parties in interest and prohibited transactions– Accounting estimates (actuarial, IBNR, post retirement)
RISK ASSESSMENT STANDARDS
What to do for 2008 Plan year ends
Keep the planning going!
Further streamline forms
Look ahead to SAS 115! Communicating Internal Control Related Matters Identified in an Audit – supersedes SAS 112.
Start dialogue on FASB 157 NOW!
RISK ASSESSMENT STANDARDS -A LOOK BACK AT THE INITIAL IMPLEMENTATION YEAR
Feel free to contact me!Diane Wasser, CPA
Partner-In-Charge – Pension Services GroupAmper, Politziner & Mattia, LLP750 Route 202 SouthSuite 500Bridgewater, New Jersey [email protected]
“The material contained in this presentation is for general information and should not be acted upon
without prior professional consultation.”
