An Employee Stock Ownership Plan (ESOP) is an IRC section 401(a) qualified defined contribution plan which allows employees to own stock in the company for which they work. ESOPs may be sponsored by public companies or closely held corporations. They invest primarily in the securities of the sponsoring employer; may be used as a corporate financing technique; and may be leveraged or non-leveraged. ESOPs are subject to the annual reporting and audit requirements of ERISA.
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.
Primer on Employee Stock Ownership Plans
This primer provides a general understanding of employee stock ownership plans (ESOPs), and includes topics on ESOP attributes and types of ESOPs, operations and recordkeeping, leveraged ESOPs, tax benefits and related compliance requirements, prohibited transactions exemptions, valuation of employer securities and accounting and auditing resources.
AICPA Publications - General
AICPA Publications and Resources - Related to Valuations
AU-C section 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures.
AU-C section 620, Using the Work of an Auditor's Specialist and AU-C section 9620, Using the Work of an Auditor's Specialist: Auditing Interpretations of Section 620.
AICPA Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation - This Practice Aid contains extensive guidance relating to a key area of stock-based compensation. It identifies best practices for the valuation of and disclosures related to privately-held-company equity securities issued as compensation and can assist the plan auditor in understanding the valuation of the company stock.
Statement of Standards for Valuation Services No. 1, Valuation of a Business, Business Ownership Interest, Security, or Intangible Asset – This statement establishes standards for AICPA members who are engaged to or, as part of another engagement, estimate the value of a business, business ownership interest, security, or intangible asset. This statement can assist the plan auditor in understanding the valuation of the company stock.
- Archived AICPA Business Valuation Web Seminar, Understanding the Statement on Standards for Valuation Services No. 1 – This archived audio webinar is part of the AICPA’s Business Valuation Web Seminar Series on Core Competencies of Business Valuations.
Publications Available at AICPA Store
- Financial Valuation of Employee Stock Ownership Plan Shares - Larry R. Cook, author; John Wiley and Sons, publisher. This publication provides information on ESOPs with a focus on what benefits a company, shareholder or plan participant would receive by transacting shares of stock with an ESOP. It also includes information on the nature and function of ERISA, the DOL and IRS relative to ESOPs, details of important court cases, and various examples and illustrations that can be used by the valuation professional.
AICPA CPE Courses
US Department of Labor Resources
Internal Revenue Service (IRS) Resources
The ESOP Association – The ESOP Association website includes publications and products, including an administrative handbook with a glossary of ESOP terminology, briefs and publications on valuation and financing issues.
The National Center for Employee Ownership (NCEO) – The National Center for Employee Ownership (NCEO) website includes articles and research on ESOPs, including a bi-monthly column on current news and legislative updates, and publications, including topics such as ESOP valuations, S Corporations, various handbooks, regulatory rulings and other topics.