representation letter 401k

What am I signing? – A quick guide to management representation letters

Authored by Belfint, Lyons & Shuman, CPAs on November 30, 2016

Disclaimer: All blog posts are valid as of the date published.

Generally Accepted Auditing Standards (GAAS) require all benefit plan auditors to obtain a representation letter from plan management. Representation letters include written statements made by plan management regarding its responsibilities. Key items that management acknowledges responsibility for are discussed below.

Fair Presentation of Financial Statements – It is plan management, not the auditor, who is ultimately responsible for the financial statements. Plan management must acknowledge its responsibility for the fair presentation of the financial statements in a signed representation letter to the auditor.

Internal Controls – Plan management has a responsibility to design, implement, and maintain an internal control system to prevent error or fraud which could materially affect the plan’s financial statements. Key areas where controls should be in place are receipts and disbursements from the plan.

Access to Information – Plan management must provide a written statement to the auditor that it has provided the auditor access to all information relevant to the fair presentation of the financial statements, to the best of their knowledge.

Knowledge of Fraud –  Plan management must provide a written statement that it is not aware of, nor suspects, any fraud that affects the plan’s financial statements. Note that if plan management does suspect fraud, it have a responsibility to communicate the suspicion to the auditor.

Regulatory Compliance –  Plan management must provide a written statement that it is not aware of any noncompliance with laws or regulations set by regulatory bodies such as the DOL and the IRS.

Supplementary Schedules – Management must acknowledge its responsibility over the fair presentation of supplementary statements, including, but not limited to, the Schedule of Assets Held for Investment and the Schedule of Non-exempt Transactions.  These schedules are not a part of the financial statements, but are presented as required supplemental information along with the financial statements. Plan management, not the auditor, is ultimately responsible for the fair presentation of the schedules.

Plan administrators should only sign the management representation letter if they understand and acknowledge everything for which they are assuming responsibility.

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February 21, 2022

A Top Auditor’s 401(k) Audit Document Checklist

We are often asked if there is a 401(k) audit checklist that we could offer to clients that are anticipating their first audit. Although each audit firm is different in the procedures that they apply and regulatory requirements will differ based upon the type of plan and transactions involved, we have put together the information below as a general guide for the information that will be needed for a 401(k) plan audit.

• Basic Plan Document
• Adoption Agreement
• Summary Plan Description
• Summary of Material Modifications (if applicable)
• IRS Opinion/Determination Letter
• Fund Agreements
• Annuity, Common Collective Trust and/or Stable Value Contracts
• Record keeping Agreement
• Custodial Agreement
• Investment Advisory Agreement
• Banking Agreement (if applicable)
• Insurance Policy (if applicable)
• Service Agreements over functions such as electronic distribution of documents
• SOC Reports from various providers (Payroll Company, Record-keeper and Custodian) including IT support for all areas.
• Current and Prior Year Discrimination Testing
• Documentation related to correction of Plan testing failures
• Current and Prior Year Plan Census
• Current and Prior Year Form 5500
• Current Year Plan Disclosures and documentation of how and when they were distributed
• Copies of 1099-R’s issued for the Plan participants or a report showing this information
• Fidelity bond copy
• Related Party and Party-in-interest Listings and description of transactions involving these parties.
• Contributions
• Distributions and Loans
• Plan level access (administrative access)
• Higher level review of the Plan (monitoring of Plan activity)
• Payroll processes and setup of new employees
• Payroll processes and setup of a new loan for the participant
• Payroll processed and termination procedures
• Year-end payroll reports
• Specific pay period reports for sample items
• W-2 Copies for Sample items
• Trust Report
• Activity Reports such as Contribution, Distribution, Fee and Loan reporting
• Schedule of Assets
• Custodial Certification
• Custodial Statements (if applicable)
• Bank Statements
• Insurance Policy year-end information
• Participant Statement Copies or a report providing information on participant accounts showing the investment information and sub-account information (pre-tax account, rollover account, employer accounts, etc. for each participant).
• Enrollment and Deferral Change Forms
• Decline of Enrollment Forms (if applicable)
• Distribution requests or a report showing this information
• Loan requests or a report showing this information
• Promissory note copies and amortization schedules
• Check copies or a report showing the distribution or loan issuance
• Reports showing investment selections made by a participant
• Rollover supporting documentation
• Management Representation Letter
• Attorney Representation Letter (if applicable)
• Review of Financial Statements and Disclosures
• Discussion with the auditor regarding any issues noted during the year

While this is not meant to be a complete listing of all the information that will be needed for a  401(k) Plan audit , we do believe it can be used as a checklist to prepare for an upcoming audit. It is also a good list to use for retention policy purposes.

As an audit may not be needed for the current plan year, it may be required in the future. Auditors are required to verify beginning balances in all first audits. This will require reviewing prior year information. In those cases, the above information will be needed for years before the year being audited. For that reason, we encourage developing a document retention policy for your 401(k) plan that reviews all of the above information.

This will ensure that if and when an audit is required, you will be able to provide the auditor with the necessary information quickly and without significant administrative time on your end to locate the needed documents.

When it’s time for your plan’s audit, it’s vital that you hire a trusted auditor. At Anders CPAs + Advisors we specialize in retirement plan audits . We have the ability to offer assistance entirely off-site with little or no distraction to your daily office routine. We also offer flat-fee pricing so there are no surprises on your bill when the job is complete.

To get started, request a free 401(k) audit consultation below or contact the team at (314)-886-7913 to schedule an appointment.

Kim S. Moore

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• CLIENT PORTAL

A Guide to a 401(k) Audit

As a plan sponsor you may be required to engage a CPA firm to perform an audit of your 401(k) plan. This guide has been prepared to assist plan sponsors in preparing for the annual audit of their 401(k) plan. The early completion of the key items outlined in this guide will minimize the time required to audit the plan and help keep the cost of the audit to a minimum. Generally, audited financial statements are required to be filed with Form 5500 for plans with 100 or more participants as of the beginning of the plan year. The Form 5500 is due by the seventh month following the plan year end. An additional 2 ½ month automatic extension is available by filing IRS Form 5568. You are encouraged to plan early to avoid the potential of a late filing for which the IRS penalties are quite steep. If this is the first year your organization is required to have an audit, the process can seem overwhelming. The guide provided below can help make the process less intmidating. If you would like more information on 401(k) audit topics, please click here to see Downey & Company’s 401(k) Audit Page.

The following is a guide to a 401(k) audit (assuming your plan qualifies for a limited-scope audit):

1. Provide your CPA with the most current versions of the plan document, plan amendments, summary plan description, IRS determination letters, prior Form 5500 and an independent auditor’s report. If you use an outside third party administrator or an investment provider, have them provide you these documents, if you don’t already have them. You will need to request an “audit package” which includes the trust and participant accounting. This audit package will need to be forwarded to your auditor or the auditor will need to be given access to an online account to access the information.

2. If your plan assets are held by a trust company (bank or non-bank) or an insurance company, you may be eligible to have your plan elect the “limited-scope exemption”. This exemption does not eliminate the requirement for an audit; however, it reduces the “scope” and will typically reduce the cost of the audit. The trust company or insurance company must provide a certification as to the completeness and accuracy of the investments and related investment transactions it holds on behalf of your plan. Request an “annual audit package” from the trust company or insurance company and provide it to your CPA as soon as possible.

3. If your plan assets are not held by any of the institutions mentioned above in item 2, have your investment provider prepare account statements for the entire plan year and provide them to your CPA as soon as possible.

4. If your plan holds investments in limited partnerships, real estate or other investments, or if your plan is an ESOP for which published market values as of the plan year end are not readily available, obtain an independent appraisal of such investments as of the plan year end and provide copies to your CPA.

5. Provide your CPA with the annual census report for the year being audited. It is recommended that you prepare your census to include ineligible participants as well as eligible. Most third party administrators and investment providers have systems that will allow you to provide them this data in an electronic format. Make sure that the census data is reconciled with your annual payroll data to avoid any inadvertent errors. This area tends to be the most troublesome in terms of errors.

6. Provide your CPA with the annual administration performed by your outside recordkeeper. This normally includes participant allocation reports, discrimination and coverage tests, Form 5500, etc. If your plan is a 401(k) plan, make sure your recordkeeper performs the discrimination tests and returns any excess contributions within 2 ½ months after your plan year end, otherwise a 10% penalty will apply.

7. If your plan permits participant loans, reconcile all loans at plan year end and provide your CPA with a year end loan summary. Most recordkeepers provide this service.

8. If your plan financial statements are prepared on the accrual basis of accounting, provide your CPA with a list of any employee and employer contributions for the plan year not deposited as of the end of the plan year. Employee contributions (i.e. 401(k) deferrals) and participant loan payments are required to be deposited on the earliest date on which such contributions can reasonable be segregated from the employer’s general assets. Employer contributions are generally required to be deposited by the due date (including extensions) of the plan sponsor’s income tax returns.

9. Once all this information is provided, your auditor will schedule a field work date with you to come out to your location to meet with the personnel who are responsible for the plan. The auditor will need to gain a better understanding of how the plan accounting works, the internal controls over the plan, and any fraud risk.

10. Once this information is obtained, your auditor will pick a sample of employees, distributions and loans, and request that you provide employee files and supporting documents for the distributions and loans.

11. When the fieldwork is done and the financial statements are completed, you will be provided with a draft of the financial statements and a draft of a report of any control deficiencies found during the audit. You will also receive a management representation letter with notations on any adjustments made to the plan accounting records. This letter will need to be signed and returned to the auditor.

12. Once the management representation letter is returned, and you have approved the financial statement draft, the auditor will provide you with a final financial statement.

13. The financial statements will need to be filed with your Form 5500.

If you would like more information on any of the topics discussed in this article, please contact Paul McGovern at [email protected] . For a free 401(k) audit quote, please click here .

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ERISA Section 103(a)(3)(C) audits resource center

The Center has compiled tools and resources to assist members and plan clients in understanding and performing ERISA Section 103(a)(3)(C) audits.

ERISA Section 103(a)(3)(C) audits of employee benefit plans This primer tool provides a general description of the statutory and regulatory basis that permits the plan administrator to make the ERISA Section 103(a)(3)(C) audit election, what constitutes a proper certification from a qualified institution, management’s responsibilities, the ERISA Section 103(a)(3)(C) audit in the current environment, and the effect of the ERISA Section 103(a)(3)(C) audit election on the independent auditor’s responsibilities.

Common deficiencies in ERISA Section 103(a)(3)(C) audit certifications This tool helps plan management understand its responsibilities for determining the acceptability of an ERISA Section 103(a)(3)(C) certification; helps auditors understand their responsibilities with respect to the certification; and helps both plan administrators and auditors identify common deficiencies in certifications. It also includes an illustration of a proper certification.

Conditions for plan management to elect an ERISA Section 103(a)(3)(C) audit This tool is intended to assist plan management in assessing whether the conditions for electing an ERISA Section 103(a)(3)(C) audit have been met.

Documentation of the auditor’s evaluation of management’s assessment of an ERISA Section 103(a)(3)(C) audit certification This tool is intended to assist the auditor in documenting procedures performed related to an ERISA Section 103(a)(3)(C) audit certification.

AICPA resources

AICPA Audit and Accounting Guide, Employee benefit plans , provides information about ERISA Section 103(a)(3)(C) audits, as well as guidance for planning and performing them.

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Representation letter.

Guide to Understanding and Writing the Representation Letter (Management Representation Letter)

In the realms of auditing and compliance, the Representation Letter, often known as the Management Representation Letter, is a vital document that acts as a bridge between the management and the auditors. It signifies management’s acknowledgment of the statuses, obligations, and responsibilities related to the financial statements and the auditing process. This guide is meticulously designed to assist internal auditors, financial managers, compliance officers, accountants, and accounting students in fully grasping the depth and detail involved in this process.

Understanding the Representation Letter

Definition and purpose.

At its core, the Representation Letter is a written confirmation and assurance from management, principally the top management, that they have made all relevant disclosures to the auditors. It’s a statement that supports the truthfulness of the information provided and asserts that management has fulfilled its responsibilities with regard to the financial reporting process.

Contents and Key Components

The letter is loaded with significance as it encompasses a range of declarations. The key components include affirmations about the accuracy and completeness of records, unrestricted access to all information, and the provision of external confirmations when necessary. These declarations are vital for the external and internal auditors in assessing the company's financial health.

Writing a Comprehensive Representation Letter

Ensuring the representation letter is comprehensive and robust is non-negotiable. Here are the detailed steps to draft it effectively:

Step-by-Step Instructions

1. identify the audience and purpose.

Start by identifying to whom the letter is addressed, whether it is external auditors, regulatory authorities, or internal audit committees. This reflects in the tone and the level of detail the letter requires.

2. Understand the Scope and Requirements

The letter must cover the entire financial statement period and all significant elements. Understanding the specific requirements as per the jurisdiction’s laws or regulatory standards is crucial for compliance.

3. Collect Necessary Information and Documentation

Gather all supporting documentation such as financial statements, reports, and any relevant communication from auditors to ensure accuracy and precision in the letter.

4. Draft the Letter with Clarity and Precision

The actual writing process should begin by explicitly stating the assertions being made by the management. Use a formal, professional tone, and ensure that language is clear and straightforward to avoid misinterpretation.

5. Review and Seek Approval

Prioritize review and approval from the relevant parties within the management to ensure that the letter is legally binding and aligns with the company’s policies and regulatory frameworks.

Best Practices and Tips

Clear communication.

Clarity in the representation letter is as critical as the accuracy of the information. Avoid using vague terms that could be interpreted differently by the audience.

Avoiding Ambiguities

The management needs to be specific in its representations, particularly when confirming the absence of certain conditions or events.

Ensuring Alignment with Regulations and Standards

The content of the representation letter should not only be accurate but should also reflect complete conformity with the required accounting standards and regulations.

In summary, the Representation Letter is not just a formality, but a serious and considered affirmation by management that they stand behind the financial information reported. It is imperative for any organization serious about maintaining trust with key stakeholders. By following the guide provided, professionals are better equipped to create and understand the vital role played by the representation letter in the audit process. This letter not only bolsters the confidence of auditors, but also reassures investors and regulatory bodies of the credibility of the financial statements. Engaging in this process with precision and earnestness yields an invaluable asset in the company’s reputation.

Learn how Ramp makes accounting easy

AS 2805: Management Representations

Amendments to footnote 1 to paragraph .02 have been adopted by the PCAOB and approved by the U.S. Securities and Exchange Commission. The amendments will be effective for audits of financial statements for fiscal years beginning on or after December 15, 2024. See PCAOB Release No. 2024-004 , SEC Release No. 34-100773 .  View the standard as amended .

Summary Table of Contents

• .01  Introduction
• .02  Reliance on Management Representations
• .05  Obtaining Written Representations
• .13  Scope Limitations
• .15  Effective Date
• .16  Appendix A - Illustrative Management Representation Letter
• .17  Appendix B - Additional Illustrative Representations
• .18  Appendix C - Illustrative Updating Management Representation Letter

Introduction

.01        This section establishes a requirement that the independent auditor obtain written representations from management as a part of an audit of financial statements performed in accordance with the standards of the PCAOB and provides guidance concerning the representations to be obtained.

Reliance on Management Representations

.02        During an audit, management makes many representations to the auditor, both oral and written, in response to specific inquiries or through the financial statements. Such representations from management are part of the evidential matter the independent auditor obtains, but they are not a substitute for the application of those auditing procedures necessary to afford a reasonable basis for an opinion regarding the financial statements under audit. Written representations from management ordinarily confirm representations explicitly or implicitly given to the auditor, indicate and document the continuing appropriateness of such representations, and reduce the possibility of misunderstanding concerning the matters that are the subject of the representations. 1

.03        The auditor obtains written representations from management to complement other auditing procedures. In many cases, the auditor applies auditing procedures specifically designed to obtain evidential matter concerning matters that also are the subject of written representations. For example, after the auditor performs the procedures described in AS 2410, Related Parties , the auditor should obtain a written representation that management has no knowledge of any relationships or transactions with related parties that have not been properly accounted for and adequately disclosed. The auditor should obtain this written representation even if the results of those procedures indicate that relationships and transactions with related parties have been properly accounted for and adequately disclosed. In some circumstances, evidential matter that can be obtained by the application of auditing procedures other than inquiry is limited; therefore, the auditor obtains written representations to provide additional evidential matter. For example, if an entity plans to discontinue a line of business and the auditor is not able to obtain sufficient information through other auditing procedures to corroborate the plan or intent, the auditor obtains a written representation to provide evidence of management's intent.

.04        If a representation made by management is contradicted by other audit evidence, the auditor should investigate the circumstances and consider the reliability of the representation made. Based on the circumstances, the auditor should consider whether his or her reliance on management's representations relating to other aspects of the financial statements is appropriate and justified.

Obtaining Written Representations

.05        Written representations from management should be obtained for all financial statements and periods covered by the auditor's report. 2 For example, if comparative financial statements are reported on, the written representations obtained at the completion of the most recent audit should address all periods being reported on. The specific written representations obtained by the auditor will depend on the circumstances of the engagement and the nature and basis of presentation of the financial statements. The auditor should provide a copy of the representation letter to the audit committee if management has not already provided the representation letter to the audit committee.

Note: When performing an integrated audit of financial statements and internal control over financial reporting, refer to paragraphs .75-.77 of AS 2201, An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements , for additional required written representations to be obtained from management.

.06        In connection with an audit of financial statements presented in accordance with generally accepted accounting principles, specific representations should relate to the following matters: 3

Financial Statements

• Management's acknowledgment of its responsibility for the fair presentation in the financial statements of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles.
• Management's belief that the financial statements are fairly presented in conformity with generally accepted accounting principles.

Completeness of Information

• Availability of all financial records and related data, including the names of all related parties and all relationships and transactions with related parties.
• Completeness and availability of all minutes of meetings of stockholders, directors, and committees of directors.
• Communications from regulatory agencies concerning noncompliance with or deficiencies in financial reporting practices.
• Absence of (1) unrecorded transactions  and (2) side agreements or other arrangements (either written or oral) undisclosed to the auditor .

Recognition, Measurement, and Disclosure

• Management's belief that the effects of any uncorrected financial statement misstatements 4 aggregated by the auditor during the current engagement and pertaining to the latest period presented are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. 5 (A summary of such items should be included in or attached to the letter.) 6 , 7
• Management's acknowledgment of its responsibility for the design and implementation of programs and controls to prevent and detect fraud.
• Knowledge of fraud or suspected fraud affecting the entity involving (1) management, (2) employees who have significant roles in internal control, or (3) others where the fraud could have a material effect on the financial statements.
• Knowledge of any allegations of fraud or suspected fraud affecting the entity received in communications from employees, former employees, analysts, regulators, short sellers, or others.
• Plans or intentions that may affect the carrying value or classification of assets or liabilities.
• Information concerning related party transactions and amounts receivable from or payable to related parties, including support for any assertion that a transaction with a related party was conducted on terms equivalent to those prevailing in an arm's-length transaction. 9
• Guarantees, whether written or oral, under which the entity is contingently liable.
• Significant estimates and material concentrations known to management that are required to be disclosed in accordance with the AICPA's Statement of Position 94-6, Disclosure of Certain Significant Risks and Uncertainties .
• Violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency. 10
• Unasserted claims or assessments that the entity's lawyer has advised are probable of assertion and must be disclosed in accordance with Financial Accounting Standards Board (FASB) Statement No. 5, Accounting for Contingencies [AC section C59]. 11
• Other liabilities and gain or loss contingencies that are required to be accrued or disclosed by FASB Statement No. 5 [AC section C59]. 12
• Satisfactory title to assets, liens or encumbrances on assets, and assets pledged as collateral.
• Compliance with aspects of contractual agreements that may affect the financial statements.

  s-1 .    The appropriateness of the methods, the consistency in application, the accuracy and completeness of data, and the reasonableness of significant assumptions used by the company in developing accounting estimates.

Subsequent Events

• Information concerning subsequent events. 13

.07        The representation letter ordinarily should be tailored to include additional appropriate representations from management relating to matters specific to the entity's business or industry. Examples of additional representations that may be appropriate are provided in appendix B, "Additional Illustrative Representations" [paragraph .17].

.08        Management's representations may be limited to matters that are considered either individually or collectively material to the financial statements, provided management and the auditor have reached an understanding on materiality for this purpose. Materiality may be different for different representations. A discussion of materiality may be included explicitly in the representation letter, in either qualitative or quantitative terms. Materiality considerations would not apply to those representations that are not directly related to amounts included in the financial statements, for example, items ( a ), ( c ), ( d ), and ( e ) above. In addition, because of the possible effects of fraud on other aspects of the audit, materiality would not apply to item ( h ) above with respect to management or those employees who have significant roles in internal control.

.09        The written representations should be addressed to the auditor. Because the auditor is concerned with events occurring through the date of his or her report that may require adjustment to or disclosure in the financial statements, the representations should be made as of the date of the auditor's report. [If the auditor "dual dates" his or her report, the auditor should consider whether obtaining additional representations relating to the subsequent event is appropriate. See paragraph .05 of AS 3110, Dating of the Independent Auditor's Report ]. The letter should be signed by those members of management with overall responsibility for financial and operating matters whom the auditor believes are responsible for and knowledgeable about, directly or through others in the organization, the matters covered by the representations. Such members of management normally include the chief executive officer and chief financial officer or others with equivalent positions in the entity.

.10        If current management was not present during all periods covered by the auditor's report, the auditor should nevertheless obtain written representations from current management on all such periods. The specific written representations obtained by the auditor will depend on the circumstances of the engagement and the nature and basis of presentation of the financial statements. As discussed in paragraph .08, management's representations may be limited to matters that are considered either individually or collectively material to the financial statements.

.11        In certain circumstances, the auditor may want to obtain written representations from other individuals. For example, he or she may want to obtain written representations about the completeness of the minutes of the meetings of stockholders, directors, and committees of directors from the person responsible for keeping such minutes. Also, if the independent auditor performs an audit of the financial statements of a subsidiary but does not audit those of the parent company, he or she may want to obtain representations from management of the parent company concerning matters that may affect the subsidiary, such as related-party transactions or the parent company's intention to provide continuing financial support to the subsidiary.

.12        There are circumstances in which an auditor should obtain updating representation letters from management. If a predecessor auditor is requested by a former client to reissue (or consent to the reuse of) his or her report on the financial statements of a prior period, and those financial statements are to be presented on a comparative basis with audited financial statements of a subsequent period, the predecessor auditor should obtain an updating representation letter from the management of the former client. 15 Also, when performing subsequent events procedures in connection with filings under the Securities Act of 1933, the auditor should obtain certain written representations. 16 The updating management representation letter should state ( a ) whether any information has come to management's attention that would cause them to believe that any of the previous representations should be modified, and ( b ) whether any events have occurred subsequent to the balance-sheet date of the latest financial statements reported on by the auditor that would require adjustment to or disclosure in those financial statements. 17

Scope Limitations

.13        Management's refusal to furnish written representations constitutes a limitation on the scope of the audit sufficient to preclude an unqualified opinion and is ordinarily sufficient to cause an auditor to disclaim an opinion or withdraw from the engagement. 18 However, based on the nature of the representations not obtained or the circumstances of the refusal, the auditor may conclude that a qualified opinion is appropriate. Further, the auditor should consider the effects of the refusal on his or her ability to rely on other management representations.

.14        If the auditor is precluded from performing procedures he or she considers necessary in the circumstances with respect to a matter that is material to the financial statements, even though management has given representations concerning the matter, there is a limitation on the scope of the audit, and the auditor should qualify his or her opinion or disclaim an opinion.

Effective Date

.15        This section is effective for audits of financial statements for periods ending on or after June 30, 1998. Earlier application is permitted.

Appendix A - Illustrative Management Representation Letter

.16        

1.    The following letter, which relates to an audit of financial statements prepared in conformity with generally accepted accounting principles, is presented for illustrative purposes only. The introductory paragraph should specify the financial statements and periods covered by the auditor's report, for example, "balance sheets of XYZ Company as of December 31, 19X1 and 19X0, and the related statements of income and retained earnings and cash flows for the years then ended." The written representations to be obtained should be based on the circumstances of the engagement and the nature and basis of presentation of the financial statements being audited. ( See appendix B [paragraph .17]).

2.    If matters exist that should be disclosed to the auditor, they should be indicated by modifying the related representation. For example, if an event subsequent to the date of the balance sheet has been disclosed in the financial statements, the final paragraph could be modified as follows: "To the best of our knowledge and belief, except as discussed in Note X to the financial statements, no events have occurred" In appropriate circumstances, item 9 could be modified as follows: "The company has no plans or intentions that may materially affect the carrying value or classification of assets and liabilities, except for its plans to dispose of segment A, as disclosed in Note X to the financial statements, which are discussed in the minutes of the December 7, 20X1, meeting of the board of directors." Similarly, if management has received a communication regarding an allegation of fraud or suspected fraud, item 8 could be modified as follows: "Except for the allegation discussed in the minutes of the December 7, 20X1, meeting of the board of directors (or disclosed to you at our meeting on October 15, 20X1), we have no knowledge of any allegations of fraud or suspected fraud affecting the company received in communications from employees, former employees, analysts, regulators, short sellers, or others."

3.    The qualitative discussion of materiality used in the illustrative letter is adapted from FASB Statement of Financial Accounting Concepts No. 2, Qualitative Characteristics of Accounting Information .

4.    Certain terms are used in the illustrative letter that are described elsewhere in authoritative literature. Examples are fraud, in AS 2401, Consideration of Fraud in a Financial Statement Audit , and related parties, in AS 2410,  Related Parties . To avoid misunderstanding concerning the meaning of such terms, the auditor may wish to furnish those definitions to management or request that the definitions be included in the written representations.

5.    The illustrative letter assumes that management and the auditor have reached an understanding on the limits of materiality for purposes of the written representations. However, it should be noted that a materiality limit would not apply for certain representations, as explained in paragraph .08 of this section.

To [ Independent Auditor ]

We are providing this letter in connection with your audit(s) of the [ identification of financial statements ] of [ name of entity ] as of [ dates ] and for the [ periods ] for the purpose of expressing an opinion as to whether the [ consolidated ] financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of [ name of entity ] in conformity with accounting principles generally accepted in the United States of America. We confirm that we are responsible for the fair presentation in the [ consolidated ] financial statements of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles.

Certain representations in this letter are described as being limited to matters that are material. Items are considered material, regardless of size, if they involve an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would be changed or influenced by the omission or misstatement.

We confirm, to the best of our knowledge and belief, [ as of (date of auditor's report), ] the following representations made to you during your audit(s).

• The financial statements referred to above are fairly presented in conformity with accounting principles generally accepted in the United States of America.
• Financial records and related data, including the names of all related parties and all relationships and transactions with related parties.
• Minutes of the meetings of stockholders, directors, and committees of directors, or summaries of actions of recent meetings for which minutes have not yet been prepared.
• There have been no communications from regulatory agencies concerning noncompliance with or deficiencies in financial reporting practices.
• There are no material transactions that have not been properly recorded in the accounting records underlying the financial statements.
• We believe that the effects of the uncorrected financial statement misstatements summarized in the accompanying schedule are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. 1
• We acknowledge our responsibility for the design and implementation of programs and controls to prevent and detect fraud.
• Management,
• Employees who have significant roles in internal control, or
• Others where the fraud could have a material effect on the financial statements.
• We have no knowledge of any allegations of fraud or suspected fraud affecting the entity received in communications from employees, former employees, analysts, regulators, short sellers, or others.
• The company has no plans or intentions that may materially affect the carrying value or classification of assets and liabilities.
• Related-party transactions, including sales, purchases, loans, transfers, leasing arrangements, and guarantees, and amounts receivable from or payable to related parties.
• Guarantees, whether written or oral, under which the company is contingently liable.
• Significant estimates and material concentrations known to management that are required to be disclosed in accordance with the AICPA's Statement of Position 94-6, Disclosure of Certain Significant Risks and Uncertainties. [ Significant estimates are estimates at the balance sheet date that could change materially within the next year. Concentrations refer to volumes of business, revenues, available sources of supply, or markets or geographic areas for which events could occur that would significantly disrupt normal finances within the next year. ]
• Violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency.
• Unasserted claims or assessments that our lawyer has advised us are probable of assertion and must be disclosed in accordance with Financial Accounting Standards Board (FASB) Statement No. 5, Accounting for Contingencies . 2
• Other liabilities or gain or loss contingencies that are required to be accrued or disclosed by FASB Statement No. 5.
• Side agreements or other arrangements (either written or oral) that have not been disclosed to you.
• The company has satisfactory title to all owned assets, and there are no liens or encumbrances on such assets nor has any asset been pledged as collateral.
• The company has complied with all aspects of contractual agreements that would have a material effect on the financial statements in the event of noncompliance.

[ Add additional representations that are unique to the entity's business or industry. See paragraph .07 and appendix B [paragraph .17] of this section. ]

To the best of our knowledge and belief, no events have occurred subsequent to the balance-sheet date and through the date of this letter that would require adjustment to or disclosure in the aforementioned financial statements.

____________________________________________ [ Name of Chief Executive Officer and Title ]

____________________________________________ [ Name of Chief Financial Officer and Title ]

[As amended, effective for audits of financial statements for periods beginning on or after December 15, 1999 by Statement on Auditing Standards No. 89. As amended, effective for audits of financial statements for periods beginning on or after December 15, 2002, by Statement on Auditing Standards No. 99.]

Appendix B - Additional Illustrative Representations

.17        

1.    As discussed in paragraph .07 of this section, representation letters ordinarily should be tailored to include additional appropriate representations from management relating to matters specific to the entity's business or industry. The following is a list of additional representations that may be appropriate in certain situations. This list is not intended to be all-inclusive. The auditor also should consider the effects of pronouncements issued subsequent to the issuance of this section.

Appendix C - Illustrative Updating Management Representation Letter

.18        

1.    The following letter is presented for illustrative purposes only. It may be used in the circumstances described in paragraph .12 of this section. Management need not repeat all of the representations made in the previous representation letter.

2.    If matters exist that should be disclosed to the auditor, they should be indicated by listing them following the representation. For example, if an event subsequent to the date of the balance sheet has been disclosed in the financial statements, the final paragraph could be modified as follows: "To the best of our knowledge and belief, except as discussed in Note X to the financial statements, no events have occurred. . . ."

    [ Date ]

    To [ Auditor ]

    In connection with your audit(s) of the [ identification of financial statements ] of [ name of entity ] as of [ dates ] and for the [ periods ] for the purpose of expressing an opinion as to whether the [ consolidated ] financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of [ name of entity ] in conformity with accounting principles generally accepted in the United States of America, you were previously provided with a representation letter under date of [ date of previous representation letter ]. No information has come to our attention that would cause us to believe that any of those previous representations should be modified.

    To the best of our knowledge and belief, no events have occurred subsequent to [ date of latest balance sheet reported on by the auditor ] and through the date of this letter that would require adjustment to or disclosure in the aforementioned financial statements.

    __________________________________________ [ Name of Chief Executive Officer and Title ]

    __________________________________________ [ Name of Chief Financial Officer and Title ]

[Revised, October 2000, to reflect conforming changes necessary due to the issuance of Statement on Auditing Standards No. 93.]

Footnotes (AS 2805 - Management Representations):

1 AS 1015, Due Professional Care in the Performance of Work , states, "The auditor neither assumes that management is dishonest nor assumes unquestioned honesty. In exercising professional skepticism, the auditor should not be satisfied with less than persuasive evidence because of a belief that management is honest."

2 An illustrative representation letter from management is contained in appendix A, "Illustrative Management Representation Letter" [paragraph .16].

3 Specific representations also are applicable to financial statements presented in conformity with a comprehensive basis of accounting other than generally accepted accounting principles. The specific representations to be obtained should be based on the nature and basis of presentation of the financial statements being audited.

4 AS 2810, Evaluating Audit Results, indicates that a misstatement can arise from error or fraud and also discusses the auditor's responsibilities for evaluating accumulated misstatements .

5 If management believes that certain of the identified items are not misstatements, management's belief may be acknowledged by adding to the representation, for example, "We do not agree that items XX and XX constitute misstatements because [description of reasons]." 

6 AS 2810.11 states that the auditor may designate an amount below which misstatements need not be accumulated. Similarly, the summary of uncorrected misstatements included in or attached to the representation letter need not include such misstatements. The summary should include sufficient information to provide management with an understanding of the nature, amount, and effect of the uncorrected misstatements. Similar items may be aggregated.

7 The communication to management of immaterial misstatements aggregated by the auditor does not constitute a communication pursuant to paragraph .17 of AS 2405, Illegal Acts by Clients , Section 10A of the Securities Exchange Act of 1934, or paragraphs .79 through .82 of AS 2401, Consideration of Fraud in a Financial Statement Audit . The auditor may have additional communication responsibilities pursuant to AS 2405, Section 10A of the Securities Exchange Act of 1934, or AS 2401.

[8] [Footnote deleted.]

9 See AS 2410.18. 

10 See AS 2405. 

11 See paragraph .05 d of AS 2505, Inquiry of a Client's Lawyer Concerning Litigation, Claims, and Assessments. If the entity has not consulted a lawyer regarding litigation, claims, and assessments, the auditor normally would rely on the review of internally available information and obtain a written representation by management regarding the lack of litigation, claims, and assessments; see auditing Interpretation No. 6, "Client Has Not Consulted a Lawyer" (paragraphs .15-.17 of AI 17, Inquiry of a Client's Lawyer Concerning Litigation, Claims, and Assessments: Auditing Interpretations of AS 2505 ) .

12 See AS 2505.05 b . 

13 See paragraph .12 of AS 2801, Subsequent Events , paragraph .10 of AS 4101, Responsibilities Regarding Filings Under Federal Securities Statutes , and paragraph .45, footnote 31 of AS 6101, Letters for Underwriters and Certain Other Requesting Parties . 

[14] [Footnote deleted.]

15 See paragraph .55 of AS 3105 , Departures from Unqualified Opinions and Other Reporting Circumstances .

16 See AS 4101.10. 

17 An illustrative updating management representation letter is contained in appendix C, "Illustrative Updating Management Representation Letter" [paragraph .18]. 

18 See AS 3105.05–.17. 

Footnotes (Appendix A - Illustrative Management Representation Letter):

1 If management believes that certain of the identified items are not misstatements, management's belief may be acknowledged by adding to the representation, for example, "We do not agree that items XX and XX constitute misstatements because [ description of reasons ]." 

2 In the circumstance discussed in footnote 11 of this section, this representation might be worded as follows:

    We are not aware of any pending or threatened litigation, claims, or assessments or unasserted claims or assessments that are required to be accrued or disclosed in the financial statements in accordance with Financial Accounting Standards Board Statement No. 5,  Accounting for Contingencies , and we have not consulted a lawyer concerning litigation, claims, or assessments.

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SAS 114 and 115 Auditor Communication Letters Review

(1) the SAS 114 : The Auditor’s Communication with Those Charged with Governance letter or (2) the SAS 115 Letter: Communicating Internal Control Related Matters Identified in an Audit.

Even if your plan auditor does not identify material weaknesses or deficiencies that would require written communication, he or she is likely to communicate any insignificant deficiencies or recommendations for how to improve the plan’s operations, security or governance via a “Management Letter.” Some auditors may prefer to have a conversation with the plan sponsor or committee in charge of the plan to make sure the comments are understood. For most plans, the plan sponsor or committee charged with governance may include the audit committee of the Board or the appropriate group overseeing the financial reporting process of the plan, such as the employee benefits committee, administrative committee, plan administrator, or responsible party. For some plans, it may be a single executive, such as the chief financial officer. The plan sponsor or committee charged with governance of your plan should expect to receive and review these communications from your plan auditor with the understanding that the Department of Labor will often see a copy of the auditor’s findings as well as any successor auditor. This “SAS 114” letter is an American Institute of CPAs (AICPA) required communication letter for all financial statement audits. The letter's purpose is to communicate to those charged with governance, any significant findings, and other information, such as disagreements with management, audit adjustments, and significant estimates that aren’t communicated in the audited financial statements. These are findings that must be understood and addressed by the Persons charged with governance. The “SAS 115” letter is usually issued when any significant deficiencies or material weaknesses would have been discussed with management during the audit but is not required to be communicated in written form. In performing an audit of your plan’s internal controls and plan financials, your auditors are required to obtain an understanding of the plan’s operations and internal controls. In doing so, they may become aware of matters related to your plan’s internal control that may be considered deficiencies, significant deficiencies, or material weaknesses.

These are matters that the sponsor or committee in charge of the plan must familiarize themselves with to establish a correction and prevention plan.

Following is a description of each potential observation:

Deficiencies in Internal Control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect, and correct misstatements on a timely basis. Significant Deficiencies. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Material Weaknesses. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected, and corrected on a timely basis.

As mentioned earlier, auditors are not required to make these communications in writing (SAS 115 letter) unless, in the auditor’s professional judgment, verbal communication would not be adequate. Therefore, no letter can be a good thing but is not an all clear signal. Regardless of the form of communication, both letters should be reviewed with each affected party to ensure the accuracy of plan operations and the integrity of the plan’s assets and financial reporting.

Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice.

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What is a Representation Letter?

An auditor’s responsibility is to gather audit evidence regarding a subject matter. This evidence comes from several audit procedures. Based on this evidence, the auditor must conclude whether the subject matter meets specific criteria. In the case of external audits , it includes examining a client’s financial statements to establish whether they are free from material misstatements.

A representation letter is a form of written representation obtain from a client. Written representations are audit evidence that auditors collect. Similarly, they are necessary information that auditors may require related to a specific audit assignment. These are similar to audit inquiries but in a written form. The international auditing standard that deals with written representations are ISA 580 Written Representations.

Once presented to the management, a senior official will sign the representation letter. Usually, a client’s CEO, CFO, or other higher senior accounting personnel sign the letter. This process must take place before auditors present an audit report regarding the client’s financial statements. The content of the representation letter may vary from one firm to another. However, there are some similar elements or contents that are present in every representation letter.

What are the Contents of the Representation Letter?

1. The management is responsible for the proper presentation and accurate preparation of the financial statements. It will also include a reference to the applicable accounting framework for this purpose. 2. The auditors have received all the financial records related to the audit. 3. The board of directors meeting minutes are complete. 4. There are no unrecorded transactions. 5. The management has disclosed all related party transactions. 6. The management has provided all letters from regulatory agencies regarding financial reporting noncompliance if required. 7. The net effect of all uncorrected misstatements is immaterial. 8. The financial statements conform to the applicable accounting standards. 9. The management doesn’t have any knowledge of fraud within the company. 10. The financial statements account for all material transactions. 11. The management is responsible for systems designed to detect and prevent fraud. 12. The client has disclosed all liens and other encumbrances on its assets. 13. The management has disclosed all contingent liabilities. 14. The management acknowledges its responsibility for the system of financial controls. 15. The client has disclosed all unasserted claims or assessments.

Overall, the representation letter will consist of all the management’s responsibilities for the financial statements and the audit. This letter will decrease the auditors’ responsibility if there is a future dispute. Similarly, it places responsibility on the management for areas where it must ensure proper accounting and controls. Auditors will not allow the management to make changes to the representation letter before signing.

What Happens If Auditors Cannot Obtain Reliable Representation Letters?

If auditors conclude that the representation letter is not reliable, they must take appropriate actions. These may include establishing the possible effect on the opinion in the auditor’s report. The same cases will apply when the management refuses to provide a representation letter. The auditor must discuss it with the management before taking any actions.

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What Is a Letter of Determination?

If you're a business owner who's setting up a 401(k) or another retirement plan for employees, you may want to obtain a letter of determination from the IRS. A letter of determination shows that your plan meets the minimum standards to receive tax-advantaged treatment. In this article, we'll cover how letters of determination work and when you should seek one.

What is a letter of determination?

Both employees and employers receive tax benefits from a company-sponsored retirement plan, like a 401(k) . With a traditional 401(k), the employee lowers their tax liability for the current year; with a Roth 401(k), they get tax-free withdrawals in retirement. Employers get to deduct their contributions on the company's federal tax return and may even qualify for tax credits.

A letter of determination shows that a plan meets all the requirements of the Employee Retirement Income Security Act of 1974 (ERISA) and qualifies for special tax treatment. When the IRS issues a letter with a favorable determination regarding the plan, it generally means that:

• The employer can deduct their contributions up to the annual 401(k) contribution limits .
• Employees can deduct their contributions to the plan unless they're contributing to a Roth account.
• Contributions can grow on a tax-deferred basis until the employee makes a withdrawal.

However, if the plan is significantly amended, the law changes, or the application contains errors or omissions, an employer may not be able to rely on a favorable letter.

Is it required?

Is a determination letter required.

Not in many cases. Many employers use what are called pre-approved retirement plans . Basically, a financial institution or benefits provider prepares a plan document and submits it to the IRS for approval. Once approved, the institution or benefits provider makes it available for employers to adopt.

An employer who uses a pre-approved retirement plan generally won't have to apply for a letter of determination from the IRS. However, if an adopting employer makes substantial changes to the plan document, it risks becoming an individually designed plan. In that event, it can't rely on guidance in the pre-approved document for confirmation that the plan meets Internal Revenue Code requirements for a qualified retirement plan .

But even if your plan becomes an individually designed plan, that doesn't necessarily mean you can seek a letter of determination. In 2017, the IRS limited the circumstances in which employers with individually designed plans can request a determination letter. For example, employers can seek a letter of determination if they've never received a favorable determination letter in the past or if they've received a favorable letter in the past but the plan is terminating or merging with the plan of a previously unrelated organization.

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Limitations

Limitations of a determination letter.

Under ERISA rules, qualified retirement plans must undergo complex nondiscrimination testing to show that the plan doesn't disproportionately benefit highly compensated employees , i.e., top earners or those who own part of the company. However, a determination letter won't tell you whether your plan passes nondiscrimination tests.

To keep its qualified status, a plan must pass the following tests:

• Annual deferral percentage test (ADP): Compares the average salary deferral percentage for highly compensated employees vs. non-highly compensated employees.
• Annual contribution percentage test (ACP): Compares the average employer contributions received by highly compensated employees vs. non-highly compensated employees.

How to get one

How do i get a letter of determination.

Remember: If you use a pre-approved plan and don't make significant changes to it, you won't need a letter of determination. However, if you need to apply for a determination letter, use Form 5300 , available on the IRS website. To amend a pre-approved plan, use Form 5307 . If you're terminating a plan, use Form 5310 .

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Benefit Plans Now Have New Audit Requirements for Auditors... And Plan Sponsors Too

In order to provide improved transparency and consistency of ERISA plan financial audits, the AICPA issued Statement on Auditing Standards (SAS) No. 136.

The changes introduced by this new standard are some of the most significant changes impacting the Employee Benefit Plans since 1974 when Congress enacted the Employee Retirement Income Security Act (ERISA) to help protect retirement benefits for workers covered by private pension plans.

In addition to establishing minimum standards for benefit accrual, funding and vesting, ERISA section 103(a)(3) introduced the requirement for employee benefit plans with 100 or more participants to be audited by an independent qualified public accountant.

ERISA’s independent audit requirements are administered and enforced by the U.S. Department of Labor (DOL). The ERISA regulations have not changed rather than the AICPA standard governing how auditors and plan sponsors can comply with ERISA Section 103(a)(3)(C) audit election.

The new standard (SAS No. 136) replaces the “limited-scope audit” with the ERISA Section (a)(3)(C) audit and prescribes certain new performance requirements and changes the form and content of the auditor’s report and expands the responsibilities of both the auditor and the plan sponsor. The new audit standard is effective for ERISA plan audits for periods ending on or after December 15, 2021.

New requirements for auditors:

• Engagement letter acceptance including additional management representations
• Performing risk assessment procedures related to the plan instrument, plan tax status and prohibited transactions and responding to identified risks
• Communicating additional findings (reportable findings) to plan sponsors
• Issuing a new form of auditor’s report

While an ERISA Section 103 (a)(3)(C) audit still allows a certification statement concerning investments and investment income, the auditor can no longer issue a disclaimer of opinion. Instead, the auditor must issue two opinions – one on the form and content of the certified information, the other on the fair presentation of information in the financial statements not covered by the certification.

New requirements for plan sponsors:

• To elect to have a ERISA Section 103 (a)(3)(C) audit, plan sponsors must confirm they are eligible for this exception to the full-scope audit and then convey this to the auditor in writing
• In the engagement letter, they must acknowledge their responsibility for the administration of the plan including maintaining the current plan document and all amendments
• They must provide a written statement guaranteeing that plan transactions and financial statements are consistent with plan provisions, and that sufficient participant records are being kept to determine benefits due
• They must make sure that plan investment information is prepared and certified by a qualified institution (bank or similar institution, insurance company)

Before the completion of the audit, the plan sponsor is required to provide the auditor with a virtually complete Form 5500 and its schedules so the auditor can compare it to its findings. The auditor can then let the plan sponsor know if there is a difference between the Form 5500 and the auditor’s findings that requires corrections to the Form.

Our National Employee Benefit Plan Group provides employee benefit plan audit services to 350 clients across the U.S. Our team of auditors communicate proactively with management, bring relevant and timely guidance drawn from our broad client base and provide quality attest services and valuable advice at a reasonable and predictable cost.

Click here to review the AICPA’s overview on SAS 136.

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Understanding the Representation Letter

Written by David T. Schwindt, CPA

What is a Representation Letter? As a Board member or manager of a community management company, you may be asked to sign a representation letter at the conclusion of an audit or a reviewed financial statement engagement.  Although the letter is from the Association/management company to the CPA, the CPA will generally draft the letter on behalf of the Association.   The letter includes certain assertions about the Association during the period covered by the financial statements.  Those assertions include but are not limited to the following:

• The Association/management company has provided the CPA with all requested financial information.
• The Association/management company has disclosed all related party transactions.
• The Association/management company has disclosed all existing and potential litigation.
• The Association/management company has disclosed any knowledge of fraud or financial irregularities.
• The Association takes responsibility for the design and implementation of a system of internal controls.  These controls include but are not limited to safeguarding assets, approving transactions and minimizing the risk of someone perpetrating a theft of money or information and not being discovered in a reasonable amount of time. Although the Board is ultimately responsible for this activity, it is common that Boards rely upon the management company to assist in this responsibility.

In some instances, the management company may sign a different representation letter because the responsibilities are slightly different.

Why is the Representation Letter necessary? The American Institute of Certified Public Accounts has determined that those charged with governance (the board of directors and the community management company) should take responsibility for the assertions in the representation letter.  CPAs are mandated to obtain the signed representation letter before issuing the final financial statements.

Who should sign the representation letter? Most often, the Board Chair, Board Treasurer and community manager signs the letter.

When does the Representation Letter need to be signed? The letter needs to be signed at the end of the engagement generally after a draft of the financial statements are issued.  Schwindt & Co combines the representation letter with the management letter comments and proposed adjusting journal entries for ease of review.  When the signed document is received by our office, we are then able to issue the final financial statements.

Should a new Board member or community manager who was not involved with Association management or governance during the period under audit or review be hesitant about signing the representation letter? This is a common question and the answer is simple.  No!  The first paragraph of the representation states that whoever signs the letter does so based on the best knowledge and belief of the person signing.  This means that even though you may be new to the Board or management company, it is perfectly fine to sign the letter because you will only be asserting to issues that you have knowledge.  It is very common for Board members/managers to sign a representation letter even though they were not involved during the period being audited or reviewed.

• Representation letters are normal and required before the issuance of audited/reviewed financial statements.
• Board members are only asserting to issues that they are aware of and new board members and managers frequently are required to sign representation letters.
• The Board Chair, Board Treasurer and community manager are generally required to sign the representation letter.

Questions regarding this article may be directed to David T. Schwindt, CPA at Schwindt & Co. (503) 227-1165.

12300 SE Mallard Way, Suite 275 Milwaukie, OR 97222 (503) 227-1165

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Big Changes Coming to 401(k) Audits

By Matt Woodard, CPA

April 23, 2019

Plan sponsors required to undergo an annual financial statement audit of their 401k, 403b, or other employee benefit plan should be prepared for upcoming changes to the audit process. The American Institute for Certified Public Accountants (AICPA) recently issued a final balloted draft of new auditing standards governing how such audits are performed. The regulations formally known as, Statement on Auditing Standards, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA , changes several aspects of the benefit plan audit process. While there is a small possibility additional edits could be made in the final version, it’s unlikely that changes to the audit reports, requirements for additional management disclosures and supplemental disclosures areas will be altered.  To help clients, prospects and others understand the changes and how it will impact their plan audit JLK Rosenberger has provided a summary of key details below.

Why are Plan Audits Changing?

The changes are being implemented as a reaction to the findings outlined in a Department of Labor (DOL) study on benefit plan audit quality. The 2015 report, Assessing the Quality of Employee Benefit Plan Audits , uncovered serious issues with the quality of audits being conducted. A startling finding of the study revealed that there was a 39% deficiency rate in audits analyzed and that 17% of audits failed to comply with one or more of the established reporting requirements. The assessment made many conclusions including that the smaller a firm’s benefit plan audit practice, the greater the likelihood of issues being present. When such failures occurred it was often because of lack of auditor education and training. Remedies were suggested as part of the report, but the standards board was requested to review and make formal process recommendations.

Key Plan Audit Changes

• New ERISA Section 103(a)(3)(C) Audit – Since many of the issues uncovered in the DOL assessment occurred with limited scope audits, many of the new changes have a direct impact on these areas such as client acceptance, risk assessment and reporting and communicating with those charged with governance. ERISA Section 103(a)(3)(C) Audits will replace the current limited-scope audit.
• Expanded Auditor Report – There are several changes to the audit report for both full and limited scope audits. The more major ones include notice that management is responsible for maintaining essential plan documents and they are required to ensure plan transactions are properly represented according to the plan’s provisions. There will also be an Other Matters Paragraph where the auditor will disclose their evaluation of supplemental schedules to determine conformity with established ERISA reporting guidelines.
• 5500 – Auditors will be required to obtain a substantially completed 5500 in order to determine consistency with the audited ERISA plan financial statements. If the auditor identifies material inconsistencies, the auditor should determine if the plan financial statements or 5500 should be revised for consistency.  The new guidance addresses auditor’s responsibilities if management refuses to correct inconsistencies. 
• Enhanced Risk Management – The new standards will require auditors to design and implement testing procedures in areas of plan operations that are susceptible to the greatest risk. A central component of this approach is a careful review of the plan’s provisions to identify where the possibility of misstatement may occur. It’s expected that this change will result in additional questions about plan operations and testing procedures as deemed necessary.

When Do the Changes Become Effective?

When issued as final, the new audit standard is expected to be effective for financial statement periods ending on or after December 15, 2020.

While the new audit standard is not yet final, it’s expected to be approved with few modifications. The changes will significantly impact the number of disclosures and amount of information plan management will need to provide auditors as part of the process. This will mean additional time and attention needs to be dedicated to managing the 401(k) or other benefit plan audit in the future. If you have questions about the new audit standard, or need assistance with your benefit plan audit, JLK Rosenberger can help. For additional information please call our Los Angeles, Orange County or Dallas office. We look forward to speaking with you soon.

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Audit Engagement Tools and Aids

Plan Sponsor Tool – Analyzing timeliness of remittances This tool is intended to assist clients in documenting their analysis of the timeliness of remittances of participant (employee) contributions and loan repayments, if applicable, in defined contribution retirement plans. It also may be used to document a recap of employer contributions and includes an option to reconcile employer contributions to the trust statement to verify completeness of contributions.

Peer review findings in employee benefit plan audits This tool includes the most frequent EBP-related matters found in 2019 peer reviews, and references to EBPAQC tools to help members avoid potential EBP audit problems

ERISA employee benefit plan financial statement audit special considerations This tool provides a non-authoritative overview to help auditors identify and understand recent legislative, regulatory, and professional developments that impact the 2021 ERISA employee benefit plan audit season (including plan years ending on December 31, 2020). 

Defined benefit pension plan audit information request tracker (Excel) This tool is intended to be used by plan auditors to track requests for audit information for a defined benefit pension plan audit from the plan sponsor, administrator, recordkeeper and others that may have plan information necessary to perform the audit. 

Health and welfare plan audit information request tracker (Excel) This tool is intended to be used by plan auditors to track requests for audit information for a health and welfare benefit plan audit from the plan sponsor, administrator, recordkeeper and others that may have plan information necessary to perform the audit.

DC plan audit information request tracker (Excel) This tool is intended to be used by plan auditors to track requests for audit information for a defined contribution retirement plan audit from the plan sponsor, administrator, recordkeeper and others that may have plan information necessary to perform the audit. 

Identification of Parties In Interest and Related Parties This non-authoritative tool is intended to be completed by plan management, and includes information to assist them in identifying parties in interest and related parties.

Documentation of Procedures Performed to Identify Related Parties and Related Party Transactions, and Parties in Interest and Party in Interest Transactions This non-authoritative tool may be used by plan auditors in documenting procedures performed to identify related parties and parties in interest, and transactions with those parties.

Documentation of the Consideration of Potential Prohibited Transactions in an EBP Financial Statement Audit This non-authoritative tool is designed to assist auditors in documenting their consideration of possible prohibited transactions in an employee benefit plan audit.

EBP Audit Internal Meeting Planning Tool The EBPAQC has developed this tool to help EBP auditors plan and summarize internal planning meetings with EBP audit staff. It is intended to be used as a data collection tool to assist in the planning process. 

EBP Audit Client Meeting Planning Tool The EBPAQC has developed this tool to help EBP auditors plan and summarize meetings with EBP audit clients. It is intended to be used as a data collection tool to assist in the planning process. Plan Governing Documents, Agreements, and Correspondence Index The EBPAQC has developed this tool to help EBP auditors organize, retain, and update client audit documentation relevant to the plan and its operations as a record of matters of continuing significance to future audits of the same plan. Documentation of the Auditor’s Evaluation of a Limited Scope Audit Certification The tool is intended to assist members in documenting their evaluation of whether a certification provided by a qualified institution meets the requirements of  Title 29 U.S.  Code of Federal Regulations  (CFR) Part 2520.103-8 . 

Common Deficiencies in Employee Benefit Plan Limited Scope Audit Certifications This tool to is intended to help plan administrators understand their responsibilities for determining the acceptability of a limited scope certification; help auditors understand their responsibilities for determining whether a certification can be relied upon to limit the scope of the audit; and to help both plan administrators and auditors identify common deficiencies in limited scope certifications.

Summary of Key Plan Document Provisions Relevant to a Defined Contribution Retirement Plan Audit The EBPAQC has prepared this tool to assist members in auditing the financial statements of defined 401(k) or 401(a) pensions plans in understanding the plan entity by summarizing the key provisions of the plan document that may be relevant to the plan audit.

Summary of Frequent “Unacceptable, Major” Deficiencies in DOL Audit Quality Study The EBPAQC has prepared a tool for members summarizing the frequent deficiencies noted by the DOL in its review of 400 ERISA plan audits and which DOL deemed the finding to be an “unacceptable, major” deficiency with respect to one or more relevant GAAS requirement.

Documentation of the Evaluation of an Appraisal Used as Audit Evidence in an Employee Stock Ownership Plan Financial Statement Audit This tool is designed to assist auditors in documenting their evaluation of whether an appraisal of employer stock prepared for plan management may be used as audit evidence in a financial statement audit of an employee stock ownership plan (ESOP) sponsored by a privately held company, including their assessment of whether it is necessary to use an auditor’s specialist. Documentation of Use of An Actuarial Report in an Audit of a Defined Benefit Pension Plan’s Financial Statements The tool is intended to assist members in documenting their procedures and findings related to their review of actuarial reports prepared for plan management that are used as audit evidence in their defined benefit pension plan audits. Documentation of Use of a Type 2 Service Auditor’s Report in an Audit of an Employee Benefit Plan’s Financial Statements The tool is intended to assist members in documenting procedures and findings related to controls at a service organization that are likely to be relevant to the employee benefit plan’s internal control over financial reporting. It focuses on the user auditor’s use of a type 2 report. Planning Tool:  Summary of Common EBP Audit Deficiencies, Audit Guidance and Resources This tool helps EBP auditors identify and address common deficiencies found in employee benefit plan audits. It describes the deficiencies, and provides references to suggested audit procedures and related auditing tools and resources. The tool is intended to complement the EBPAQC Tool C  ommon EBP Audit Deficiencies . Common EBP Audit Deficiencies This document is intended to help EBP audit practitioners be alert to these areas and be aware of the related key audit issues. EBPAQC Resources and Tools Use this guide as a useful tool for the upcoming audit season.

Examples of Control Communications for Employee Benefit Plans This non-authoritative document was prepared to assist Center members in preparing internal control communications to their employee benefit plan clients. It contains example comments that may be useful in preparing required communications of internal control related matters identified in your audits, management letters, and other internal control communications.

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What is a favorable determination letter?

More in retirement plans.

• Types of retirement plans
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• Published guidance
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• Topic index

A favorable determination letter:

• is issued by the IRS in response to a request by a plan sponsor as to the qualified status of its retirement plan under IRC Section 401(a).
• expresses the IRS's opinion regarding the form of the plan.
• is issued based on the submission period's applicable Cumulative List or Required Amendments List.
• applies only to the employer and the plan participants on whose behalf the determination letter was issued.

Do I need to file a determination letter application for my retirement plan?

Employers who sponsor retirement plans are generally not required to apply for a determination letter from the IRS.

Employers who adopt pre-approved plans  typically don't apply for determination letters because they can generally rely on the opinion letter issued to the pre-approved plan provider. Adopting employers who have made non-extensive modifications to their nonstandardized plans or adopting employers of any pre-approved plan (either standardized or nonstandardized) that amend their plan solely to add language to satisfy the requirements of IRC Section 415 and 416 due to the required aggregation of plans, may apply for a determination letter on Form 5307, Application for Determination for Adopters of Modified Volume Submitter Plans . See the Pre-approved retirement plan adopting employer FAQs .

Benefits of a favorable letter

Having a favorable determination letter provides the employer with reliance that:

• the plan is qualified in form under IRC Section 401(a); and
• the plan's trust is exempt under IRC Section 501(a).

Generally, if the employer operates the plan according to the terms of a plan document with a favorable determination, opinion or advisory letter, the plan will satisfy the law in operation.

The benefits of having a qualified retirement plan and operating the plan according to its terms as approved by the IRS are:

• the employer can deduct contributions made to the plan up to the applicable limits,
• the plan participants can defer income taxes on the amounts contributed to the plan (other than Roth contributions), and
• contributions grow tax-deferred until distributed from the plan.

Scope of a determination letter review

For individually designed plan applications submitted beginning on or after January 1, 2018, the IRS review will be based on the applicable Required Amendments List and will also consider prior law compliance including prior Cumulative Lists and Required Amendments Lists.

Terminating plans will be reviewed for all amendments required to be adopted to reflect qualification requirements that apply as of the date of termination, regardless of whether such requirements were included on the applicable Required Amendments List.

For an adopter of a pre-approved plan, the review will consider the Cumulative List that was used to review the underlying pre-approved plan.

Reliance on a favorable letter

Individually designed plans.

Generally, employers may not rely on a favorable letter with respect to a plan provision that is subsequently amended or that is subsequently affected by a change in law.

Expiration dates on determination letters issued to individually designed plans prior to January 4, 2016, are no longer operative. Letters issued after that date do not contain an expiration date (see Revenue Procedure 2016-37 , Section 13).

Pre-approved plans

Employers or pre-approved plan sponsors are still required to timely amend the plan to comply with future law changes.

If an adopting employer makes changes to a pre-approved plan document or adoption agreement other than choosing options permitted under the plan or other If an adopting employer makes changes to a pre-approved plan document or adoption agreement other than choosing options permitted under the plan or other IRS-sanctioned changes (see Revenue Procedure 2015-36 , sections 5, 14, 19, and 21 and Revenue Procedure 2017-41 , section 8.03), the plan may become an individually designed plan. If the plan becomes an individually designed plan, an adopting employer can no longer rely on the pre-approved plan sponsor's opinion or advisory letter and could decide to apply, if eligible, for its own determination letter for the changed plan document (see Revenue Procedure 2022-4 , section 12).

See Publication 794, Favorable Determination Letter PDF , for additional information on the limitation and scope of a favorable letter.

An employer can't rely on a favorable letter if:

• the application contained a misstatement or omission of material facts (for example, the application incorrectly indicated that the plan was a governmental plan),
• the facts subsequently developed are materially different than the facts on which the determination was made, or
• there is a change in applicable law.
• Publication 794, Favorable Determination Letter PDF
• Determination, opinion and advisory letters
• FAQs for determination letters , pre-approved plans, adopting employers and plan amendments

How to write a letter of retirement resignation

Congratulations, it’s time to retire! You’ve reached a huge milestone that marks a monumental shift away from working life. 

As you prepare to enjoy this new chapter, the first thing you need to do is take care of the formalities with a  well-written resignation letter . This letter is a professional and courteous way to announce your retirement, and is an important document for your employer. 

In this article, we explore what to include, how to write one, and some different examples of retirement letters of resignation. 

What is a resignation retirement letter?

How to write a retirement resignation letter

Resignation letter for retirement examples

Tips to make your retirement letter thoughtful and professional  

What is a resignation retirement letter?  

A resignation retirement letter is a formal notice by an employee to announce their decision to resign and retire from the workforce. Writing a resignation retirement letter is an important step that makes sure your departure is handled professionally, allowing for a smooth handover for everyone involved. It also helps you to maintain positive relationships with your professional network. 

This letter typically includes details such as the intended retirement date,  expressions of gratitude , and an offer to assist with the handover process. 

How to write a retirement resignation letter  

A retirement letter of resignation typically involves several elements. Here are some essential steps and tips to ensure clarity and professionalism.

Make a clear announcement  

Begin your letter by clearly stating your intention to retire. Mention your current position and use a formal term like ‘ retirement’ or ‘ resignation due to retirement’ . This sets a professional tone and ensures the purpose of your letter is clear from the outset. 

For example, you might write, “ Please accept this letter as my resignation from [your position] at [company] for retirement. My last day of work will be [date]”.

Include a specific end date  

If you leave your end date open, you may find that your retirement gets delayed to suit your organisation’s needs. To avoid this, make sure you include your last day of employment in the resignation letter. This sets a timeline for your employer, letting them know how long they have to recruit a replacement.

Show gratitude and appreciation  

Express sincere thanks for the opportunities and experiences you’ve had during your time with the company. Highlight specific areas of your job you’ve enjoyed or  colleagues who have had a positive impact on your career. This shows your appreciation and leaves a lasting positive impression. 

For example, you might say,  “I want to express my gratitude for the opportunities and experiences I’ve gained during my time with the company, particularly from [specific colleague or team]”.

Offer assistance  

It’s a nice idea to show your eagerness for a smooth handover by offering to help with training your replacement, documenting processes, or passing over your duties.

You could include a statement like, “ During my remaining time here, I'm happy to help with a smooth handover and assist in the process of finding and training my replacement”.

Include personal contact information  

Provide your personal contact details, such as your email address and phone number, in your resignation letter. This allows your employer to reach you after you leave if needed. This is a nice gesture that shows you’re happy to help with any follow-up questions.

Take note of timing   

Your retirement is something that’s usually planned well in advance, so it’s important that you give your organisation enough time to start their side of the process. Aim to submit your retirement resignation letter two to six months before your retirement date. 

Check your employment contract or company handbook for any specific notice period requirements to ensure you follow all the right steps.  Providing plenty of notice helps with a smooth process for all parties involved. 

Resignation letter for retirement templates  

To help create your retirement letter to your employer in Australia, here are some templates to guide you.

[Your name] [Your address] [City, state, post code] [Email address]

[Today’s date]

[Employer's name] [Company name] [Company address] [City, state, post code]

Dear [employer's name],

Please accept this letter as my resignation from the position of [your job title] at [company], with my last working day set for [date]. After [number] years with the company, I have decided to retire and embark on the next chapter of my life.

I would like to express my deepest gratitude for the opportunities and experiences I have gained during my time at [company]. I have truly enjoyed being part of such a supportive team. Special thanks to you for your mentorship and support throughout my time here.

To ensure a smooth transition, I’m happy to prepare handover notes and train my successor. Please let me know how I can be of help during this period.

Sincerely, [Your name] [Personal contact information]

[Your name] [Your address] [City, state, postcode] [Email address]

[Employer's name] [Company name] [Company address] [City, state, postcode]

⁠Dear [employer's name],

Please accept this letter as my resignation from the position of [your job title] at [company], effective as of [date of your last day]. After careful consideration, I have decided that it is time to retire and focus on family and personal projects.

I want to extend my heartfelt thanks to you and the entire team at [company] for the incredible support I have experienced over the past [number] years. Working here has been a rewarding journey, and I am grateful for the professional growth and friendships I have developed along the way.

I’m committed to ensuring a seamless transition for you and the team, and happy to help find and train a replacement.

Thank you once again for everything. 

Warm regards, [Your name] [Personal contact information]

Tips to make your retirement letter thoughtful and professional    

Finding the right tone in your retirement resignation letter is important as it reflects your professionalism and allows you to leave on a positive note. A courteous and appreciative tone helps maintain positive relationships and leaves the door open for future interactions. 

Before submitting your letter, make sure to proofread it carefully. Check for grammar and spelling errors to ensure your letter is polished and professional. 

Finally, select an appropriate method for delivering your resignation letter, such as a formal email or a printed letter handed to your manager in person, around two to six months before your desired retirement date. This gives your employer plenty of time to plan for your departure.

A well-written resignation letter is an essential part of your move into retirement. It communicates your decision clearly, maintains professionalism and helps ensure a smooth handover of your responsibilities. By taking the time to write a polished letter, you ensure your employer has what they need to process your departure and issue official documentation, like an Employment Separation Certificate. Congratulations on reaching this significant milestone!  

What is the ideal timeframe to submit a retirement resignation letter? 

The ideal timeframe to submit a retirement resignation letter is two to six months before your desired retirement date. However, this can vary depending on your industry and your own situation. Ensure that you give your employer plenty of time to plan for your departure, recruit a replacement and ensure a smooth transition.

What information should I include in my resignation letter? 

Your resignation letter should include your intention to retire, your current position, your last day of employment, expressions of gratitude, an offer to assist with the handover, and your personal contact information. 

How can I express gratitude to my employer in a professional way? 

You can express gratitude by thanking your employer for the opportunities and experiences you've had during your time at the company. Mention specific colleagues, projects, or aspects of your job that have been particularly meaningful to you. This shows appreciation and leaves a positive impression.

Should I offer to help train my replacement in my resignation letter? 

Yes, offering to help train your replacement demonstrates your professionalism and commitment to the organisation. It shows that you care about the company's success even after you leave.

What tone should I use when writing a retirement resignation letter? 

Use a formal, respectful and appreciative tone when writing your retirement resignation letter. This tone reflects your professionalism and helps maintain positive relationships with your employer and colleagues.

Do I need to include my reason for retirement in the letter? 

While it ’ s not necessary to go into detail, you should clearly state that your reason for resigning is retirement. This provides context and clarity for your decision. If you feel comfortable, you can provide more details if you like. 

Where should I find out the company's specific resignation policies? 

You should refer to your employment contract or company handbook, or speak with your HR department, to understand your company's specific  resignation policies . This ensures you comply with any required notice periods and procedures.

Is it necessary to proofread my resignation letter before submitting it? 

Yes, it is necessary to proofread your resignation letter before submitting it. Checking for grammar and spelling errors ensures your letter is acccurate and professional.

Can I use a template to write my resignation letter? 

Yes, you can use a template to write your resignation letter. Templates provide a useful structure and ensure you include all the necessary elements. Just be sure to  personalise the template to your specific situation.

What happens if my desired retirement date falls outside the company ’ s notice period? 

If your desired retirement date falls outside the company ’ s notice period, you should still communicate your plans as early as possible. In your resignation letter, explain your situation and express your willingness to work with your employer to help train your replacement or hand over duties to other employees. 

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