Posted by Saaib Uppal, CPA
Imagine you come home from school after graduation and you see your mother beaming with a huge smile on her face. She asks to see your diploma (a certificate of completion in this example) and you oblige and move on to show your father the same. “Great,” he says, “but where is your report card?” With a confused look on your face, you reach for the report card and hand it over. After he has had a chance to look it over and is pleased, you walk away wondering why it took both to satisfy your parents. A diploma and a report card both show success and it should have been an either/or situation, no? The truth is that they are not mutually exclusive and both are required in order to get an accurate picture. Now, replace your graduation with a retirement plan audit and substitute the diploma and report card with a certification letter and a SSAE 16 report, respectively. Lastly, the parents in our situation can be equal to, if not scarier than, the Department of Labor.
So what makes both documents unique and important? Let’s start with the SSAE 16 report. This is required when relying on the internal controls of a subservice organization, irrespective of whether you are getting a full- or limited-scope audit. This report allows your auditor to gain an understanding of internal controls and assess the risk of material misstatement on the financial statements. This report should, of course, cover the same period of the audit. If there is a gap in the dates, the appropriately named “gap letter” from the service organization will suffice as a supplement to the report. The SSAE 16 report allows the auditor to reduce, but not eliminate, audit testing in audit areas covered by the report.
What purpose does the limited-scope certification serve? This certification helps meet DOL Regulation 29 CFR 2520.103-8. With this document, the plan administrator can instruct its auditor to not perform any auditing procedures to the certified investment information. Said information is considered to be certified by a qualified institution as to both its completeness and accuracy. As a result, the limited-scope certification allows the auditor to exclude ONLY investment values and investment earnings from the scope of the audit, but NOT ANY OTHER AUDIT AREA.
More information on limited-scope audits can be found in one of our previous blog entries, Limited-Scope Audits. Just as not providing what your parents ask for can get you in trouble, performing a limited-scope audit because an SSAE 16 report is available, but without a limited-scope certification, can lead to severe consequences with the Department of Labor and the AICPA. It is important to understand the purpose and value of each of these documents to avoid the misconception that they are one and the same.
If you have questions or seek additional information on this subject, please contact our Employee Benefit Plan Team.
Maria T. Hurd, CPA
Retirement Plan Audit Services
Chris J. Ciminera, CPA, QKA
Manager – Accounting & Auditing