The AICPA held its annual Employee Benefit Plan Accounting, Auditing and Regulatory update in Washington, DC in December. The 2-day conference was attended by EBP professionals from across the country and focused on recent accounting and regulatory changes likely to impact the 2008 financial statement audits of employee benefit plans. The conference was facilitated by industry experts and representatives from the Department of Labor (DOL) and the Internal Revenue Service (IRS).

Although the conference covered a myriad of topics, the three most critical topics discussed were (1) the implementation of FASB Statement No. 157 (SFAS 157), Fair Value Measurements; (2) the results of recent DOL ‘s Audit Inspection Program, and; (3) the new filing requirements for 403 (b) plans. Of the three topics, only the implementation of SFAS 157 will impact all employee benefit plan audits. Consequently, our attention in this issue will be focused on this topic.

SFAS 157 provides guidance on fair value measurement is effective for years beginning after November 15, 2007. As a result, many plan sponsors will have implemented this new standard on the company’s financial statement prior to the audit of their employee benefit plan and, as a result, many will have a working understanding of the new standard and the related disclosure requirements. This coupled with the fact that investments have historically been presented at fair value on employee benefit plan financial statements led many to believe that the new standard would not be too onerous for most plan sponsors to implement. As the implementation date has drawn nearer, however, heightened concerns have been raised and new implementation guidance has been released. Much of this guidance can be found on our website.

Plans that invest in only in mutual funds and equity securities with readily determinable fair values will likely have an easier time implementing the new standard than those holding thinly traded debt or equity securities, real estate and real estate funds, interests in limited partnerships and private equity funds, investment contracts with insurance companies and/or common collective trusts and other hard to value assets.

Although many plan sponsors rely heavily on third party custodians for fair value information, plan management is responsible for reporting fair value and will need to (a) understand how fair value is determined for each asset class; (b) evaluate whether the valuation process used is appropriate under SFAS 157, and; (c) prepare additional financial statement disclosures required under the new standard, regardless of whether the plan sponsor engages an independent accountant to perform a full scope or limited scope audit. This is expected to require more time on the part of plan management to prepare for their 2008 audit. Even basic limited scope defined contribution plans holding only mutual funds and participant loans will require incremental preparation time, as plan management will need to understand how their custodian is pricing the assets and how those assets need to be presented within the new disclosure requirements. Plans holding hard to value assets will require more attention.

Time spent auditing the plans may or may not increase. The basic limited scope defined contribution plan holding only mutual funds on a well-established platform and with management that has spent the preparation time describe above, should not require significantly more time to audit. Plans with more complex investment holdings and/or plan management that lacks the time or expertise to effectively implement the new standard will likely take more time to audit. The AICPA Employee Benefit Plan Audit Quality Center has published guidance for plan sponsors to assist plan management implementing SFAS 157 and preparing for their 2008 plan audit at http://ebpaqc.aicpa.org. The document details 10 steps plan management should take to ensure SFAS 157 is implemented effectively and efficiently.

Additionally, over the next few weeks, engagement leaders responsible for the employee benefits plan audits we perform will be contacting plan management to ensure they understand the requirements of SFAS 157 as it relates to their Plan(s) and to answer any questions they may have. Our goal is to provide each fiduciary with the information they need to effectively plan and execute the implementation of the new standard in order to minimize delays in the audit process this Spring and Summer and be as efficient as possible at a time when we all are trying to control the costs of running our businesses.

If you have questions regarding the implementation of SFAS 157 on your benefit plan or other employee benefit plan questions, please contact one of the leaders of our employee benefit plan team below:

John Nicolopoulos
(617) 241-1299
John.Nicolopoulos@caturanoandcompany.com

Michael Foraste 
(617) 241-1319
Michael.Foraste@caturanoandcompany.com