By William J. Hayes, managing editor, Pennsylvania CPA Journal

On May 21, Donna M. Massanova, CPA, partner and leader of the employee benefit plans practice at Baker Tilly Virchow Krause LLP in Philadelphia, presented “The Ins and Outs of Auditing Investments” at PICPA’s annual Employee Benefit Plans Conference in Malvern and live via webcast. I recently sat down with her to discuss what she covered in her presentation, including the more common investments found in a plan and how to present and disclose those investments in a financial statement.

What are one or two of the more common investments found in employee benefit plans?

Common investments of a defined contribution plan that is participant-directed could be mutual funds, balanced funds, collective trusts, and pooled separate accounts. These funds provide diversity and a varied level of risk to conform to the participants’ individual retirement needs. They mostly have less complex valuation methodologies derived from observable inputs.

Does auditing investments vary much when talking about a limited or full-scope engagement?

Yes, as will be shown in my presentation. A limited-scope audit requires much less audit inquires and procedures. Obtaining an understanding of the trustee/custodian’s internal controls and a confirmation of the investments held would only be a requirement of a full-scope audit, just to name a couple of the additional requirements of a full-scope audit.

Although, the auditing of investments in a full-scope audit requires additional procedures than in a limited-scope audit, be sure to remember all other cycles in the audit to include contributions, benefit payments, participant data, and expenses will follow the same audit methodologies in both types of audits, and required procedures and inquiries will not differ whether a full- or limited-scope audit.

Are there guidelines for how investments need to be presented and disclosed in financial statements?

Yes. Assets with readily determinable fair values, assets measured at net asset value using the practical expedient, hard-to-value assets, and fully benefit-responsive investment contracts (FBRICs) will require unique disclosures and varying positioning in the financial statements. They may include classification within the fair value hierarchy based on inputs, activity in the market, and liquidity; not classified at all in the fair value hierarchy due to certain characteristics and plan managements’ elections; or, in the case of the FBRIC, not at fair value at all but instead at contract value, considered its natural attribute of value.

For more information on auditing investments in employee benefit plans, make sure to check out Massanova’s presentation at the May 21, 2019, PICPA Employee Benefit Plans Conference.

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