The Employee Benefit Plan Audit Quality Center has identified the auditing literature that specifically addresses initial audits and auditing opening balances to assist members performing an initial audit of an employee benefit plan. Following is information about where the auditor can go to find the appropriate guidance.
Employee benefit plan auditors frequently perform audits of plans that previously were not subject to audit or were audited by another firm. Events such as plan mergers, plan spin-offs, a change in the number of plan participants, or a newly established plan may result in an “initial audit” that requires auditing the plan’s opening balances. Plan auditors also need to consider opening balances when they perform an audit of a plan that was previously audited by another firm.
The auditing guidance relating to initial audits and auditing the opening balances of a plan can be found in various different types of auditing literature. Authoritative guidance is contained in GAAS. Other guidance can be found in interpretive publications, such as AICPA Audit and Accounting Guides, and other nonauthoritative sources.
Authoritative Guidance in GAAS:
GAAS includes unconditional requirements (those preceded by the word “must”) and presumptively mandatory requirements (those preceded by the word “should”). The following GAAS sections provide authoritative guidance related to auditing opening balances:
AU-C section 300 Planning an Audit, paragraph .13, discusses additional planning considerations in initial audit engagements, including performing procedures required by section 220 regarding auditor independence, and communicating with the predecessor auditor when there has been a change of auditors, in accordance with section 210.
AU-C section 510, Opening Balances—Initial Audit Engagements, addresses the auditor’s responsibilities relating to opening balances in an initial audit engagement, including a reaudit engagement. Opening balances are considered to be those account balances that exist at the beginning of the period and are based upon the closing balances of the prior period and reflect the effects of transactions and events of prior periods and accounting policies applied in the prior period. Opening balances also include matters requiring disclosure that existed at the beginning of the period, such as contingencies and commitments. AU-C 510 also covers the consistency of accounting policies, prior period audited by another auditor, and related reporting.
The auditor should comply with each requirement of all AU-C sections relevant to the audit unless, in the circumstances of the audit, the entire AU-C section is not relevant, or a requirement is not relevant because it is conditional, and the condition does not exist.
Interpretive publications are recommendations on the application of generally accepted auditing standards in specific circumstances, including engagements for entities in specialized industries. Interpretive publications consist of auditing interpretations of GAAS, exhibits to GAAS, auditing guidance included in the AICPA Audit and Accounting Guides, and AICPA auditing Statements of Position. If the auditor does not apply the auditing guidance included in a relevant interpretive publication, the auditor should be prepared to explain how the auditor complied with the SAS provisions addressed by such interpretive guidance.
The AICPA Audit and Accounting Guide Employee Benefit Plans (EBP Guide) is an interpretive publication for auditors of employee benefit plans. The following highlights the areas in the EBP Guide that discuss initial audits:
Chapter 2 of the EBP Guide contains a section entitled “Initial Audits” that addresses areas of special consideration in an initial audit of a plan’s financial statements and factors to consider when performing the risk assessment procedures for an initial audit of an employee benefit plan.
Chapter 11 of the EBP Guide contains sections entitled “Initial Audits of Plans” and “Prior Period Financial Statements Not Audited” which discuss reporting considerations for initial audits of plans and when the prior period financial statements have not been audited.
Other Auditing Publications
Other auditing publications—those other than GAAS or interpretive publications—are publications that may help the auditor understand and apply GAAS. Other auditing publications have no authoritative status.
AICPA Technical Questions and Answers (TIS) is an “other auditing publication” that includes a section related to initial audits of employee benefit plans:
TIS section 6933.01, “Initial Audit of a Plan” (AICPA, Technical Practice Aid), provides guidance regarding the extent the auditor needs to audit information from previous years for an initial audit of a plan that has been in existence for several years