Center Membership Requirements—Questions and Answers

Dear Center Member:

By Joining the Employee Benefit Plan Audit Quality Center your firm expressed its commitment to employee benefit plan audit quality by voluntarily agreeing to adhere to Center membership requirements. Some of these membership requirements were effective when your firm enrolled, while other requirements must be satisfied at various transition dates.

Upon enrollment, your firm: (1) designated an audit partner to have firm-wide responsibility for the quality of your firm's ERISA employee benefit plan audit practice; (2) affirmed that it has established a program to ensure that all ERISA employee benefit plan audit engagement personnel possess current knowledge of employee benefit plan audits; (3) made publicly available it's most recently accepted peer review; and (4) ensured that all eligible audit partners residing in the U.S. are members of the AICPA.

A list of the designated audit partners for all of the Center firm members and the related contact information may be found by clicking here.

Center firm member peer review reports are found in the AICPA Public Peer Report File on the AICPA's Web site at http://www.aicpa.org/centerprp/publicfile01.htm.

In the coming months, your firm will need to ensure it satisfies the following additional requirements:

Establish Policies and Procedures for ERISA Audit Practice and Center Membership Requirements—By December 31, 2004; your firm must establish policies and procedures specific to the firm's ERISA employee benefit plan audit practice to comply with the applicable professional standards and Center membership requirements. These policies and procedures must be documented and appropriately communicated

Internal Inspection Procedures—For firm monitoring performed beginning after January 1, 2005, your firm must establish annual internal inspection procedures that include a review of the firm's ERISA employee benefit plan audit practice by individuals possessing current experience and knowledge of the accounting and auditing practices specific to ERISA employee benefit plan audits. The internal inspection should include reviewing the firm’s compliance with the Center membership requirements. 

Peer Review Individuals—For peer review commencing after January 1, 2005, your firm also must have its ERISA employee benefit plan audits selected as part of the firm's peer review reviewed by individuals employed by a Center member firm.

Continuing Professional Education—In the firm's or the individual's first CPE cycle ending after January 1, 2005, all relevant employees of your firm must comply with the benefit plan-specific CPE requirements. For an individual signing audit opinions and an individual managing ERISA employee benefit plan audit engagements, the individual must complete a minimum of 8 hours of employee benefit plan-specific continuing professional education (CPE) within the three year period (or within the firm's or individual's most recent CPE period ending within the three year period) prior to signing an ERISA employee benefit plan audit opinion or managing an ERISA employee benefit plan audit engagement. Thereafter, the individual must have a minimum of 8 hours of employee benefit plan-specific CPE every three years (or within the firm's or individual's CPE period covering a three year period) where an individual continues in this capacity for ERISA employee benefit plan audits.

To assist you in complying with the Center membership requirements, the Executive Committee has developed a list of frequently asked implementation questions, and provided the answers to those questions. We hope that you will take a few minutes to review this information.

If you have any questions about the Center membership requirements please contact the Center at ebpaqc@aicpa.org.

Sincerely,

AICPA Employee Benefit Plan Audit Quality Center

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QUESTIONS & ANSWERS

Continuing Professional Education

Q If a staff level professional performs the entire ERISA audit, subject to a partner's review, is that individual considered an "individual managing ERISA employee benefit plan audit engagements" for purposes of this requirement?

A Yes. Individuals managing the audit engagement are professional employees who have either continuing responsibility for the overall planning and supervision of the engagement or the authority to determine that an engagement is complete subject to final partner approval, unless the partner in charge of the engagement assumes the role of manager on the engagement.

Q A firm has two partners who sign ERISA employee benefit plan audit opinions, and one individual who supervises all of the ERISA audit engagements. The firm's CPE period is on a non-calendar year basis. The first CPE cycle ending after January 1, 2005, ends June 30, 2005. Does this mean that those individuals have until June 30, 2005, to obtain the initial 8-hour benefit plan-specific CPE?

A Yes.  After June 30, 2005, those individuals who do not have the required 8 hours of benefit plan-specific CPE should not be permitted to manage ERISA engagements or sign ERISA audit opinions until the requisite CPE is obtained.

Q Are all partners of member firms required to have 8 hours of benefit plan-specific CPE every three years?

A No. Only those partners who sign ERISA employee benefit plan audit opinions are required to meet the Center's 8-hour benefit plan-specific CPE requirement.

Q Are partners who perform concurring partner reviews of ERISA employee benefit plan audits required to meet the Center's CPE requirement?

A  No. Concurring partners are not required to have the 8 hours of benefit plan-specific CPE.  However, concurring partners would be required to possess current knowledge, appropriate to their level of involvement in the engagement, of applicable professional standards, rules and regulations for ERISA employee benefit plan audits.

Q Where can a firm find qualifying CPE courses to meet this requirement?

A AICPA offers two national employee benefit plans conferences each year, as well as various employee benefit plan related webcasts and self-study CPE courses to assist you in meeting this requirement. For a listing of all conferences and courses, visit http://www.aicpa.org. In addition, several state societies offer conferences and self-study courses for employee benefit plan auditors. If you live in a state where no such courses are offered, you may wish to encourage your state society to develop such programs.

Annual Internal Inspection Procedures

Q Will a firm's existing system of quality control satisfy this requirement?

A In most cases, no. This requirement is intended to lead firms to do something extra in their system of quality control by focusing on the specific policies and procedures applicable to a firm's accounting and auditing practice for ERISA audits. Firms that do not have inspection procedures specific to their ERISA audit practice as a part of their normal monitoring procedures are required to implement such procedures.

Q  What inspection procedures would a firm need to perform related to its ERISA audit practice?

A The nature of inspection procedures will vary based on the firm's quality control policies and procedures and the effectiveness and results of other monitoring procedures. The adequacy of and compliance with a firm's system of quality control are evaluated by performing such inspection procedures as:

·         Review of selected administrative and personnel records pertaining to the elements of quality control.

·         Review of ERISA audit engagement working papers, reports, and clients' financial statements.

·         Discussions with the firm's personnel.

·         Summarization of the findings from the ERISA audit inspection procedures, at least annually, and consideration of the systemic causes of findings that indicate improvements are needed.

·         Determination of any corrective actions to be taken or improvements to be made with respect to the specific ERISA audit engagements reviewed or the firm's quality control policies and procedures.

·         Communication of the identified findings to appropriate firm personnel, including the designated partner in charge of the firm's ERISA audit practice.

·         Consideration of inspection findings by appropriate firm personnel who should also determine that any actions necessary, including necessary modifications to the system of quality control, are taken on a timely basis.

Q Does the inspection need to be performed in the firm's peer review year?

A Yes. The inspection must be done annually, regardless of whether it is the firm's peer review year. Ideally, in peer review years the inspection procedures would be completed before peer review fieldwork begins, but inspection procedures must be completed before the peer review team leaves the field.

Q  How would a small firm with one audit partner or a sole practitioner satisfies this requirement?

A In small firms qualified individuals (partners or managers) may inspect their own work (on a post issuance basis only), as long as the requirements of the AICPA's Quality Control Standards in QC Section 30 paragraph 8 a-d are met. That section states that post-issuance review procedures may constitute inspection procedures provided:

·         The review is sufficiently comprehensive to enable the firm to assess compliance with all applicable professional standards and the firm's quality control policies and procedures.

·         Findings of such reviews that may indicate the need to improve compliance with or modify the firm's quality control policies and procedures are periodically summarized, documented, and communicated to the firm’s management personnel having the responsibility and authority to make changes in those policies and procedures.

·         The firm's management personnel consider on a timely basis the systemic causes of findings that indicate improvements are needed and determine appropriate actions to be taken.

·         The firm implements on a timely basis such planned actions, communicates changes to personnel who might be affected, and follows up to determine that the planned actions were taken.

Alternatively, some firms may choose to engage an outside-qualified inspector either annually or on a periodic basis.

Q How should the firm select the ERISA audits to be inspected?

A The selection of engagements for inspection should be focused on the firm’s ERISA practice only (that is, not influenced by the size of the ERISA practice in relation to the firm’s entire audit practice.)  The number of engagements selected for inspection should be sufficient to provide the inspector with a reasonable basis for concluding whether the firm's system of quality control for its ERISA auditing practice is properly designed, and whether it was being complied with during the year. Engagements selected for review should provide a reasonable cross section of the firm's ERISA auditing practice with emphasis on engagements that are considered to have higher risk. Examples of the factors to consider when selecting engagements to inspect are: 

a.      Type of plan (e.g. defined benefit, defined contribution, health and welfare, multiemployer, ESOP)

b.      Level of service (full scope or limited scope)

c.      Experience of personnel assigned

d.      Office where the engagement was performed

e.      Initial year the ERISA audits are performed by the firm

The number of practice offices selected for inspection should be sufficient to provide the inspector with a reasonable basis for concluding whether the firm's quality control policies and procedures for its ERISA auditing practice are adequately complied with throughout the firm. Greater emphasis should be placed on selecting those offices with higher risk. Factors to consider when selecting offices include:

a.      The number, size, and geographic distribution of offices

b.      The degree of centralization of control and supervision of the firm’s ERISA  auditing practice

c.      Recently merged or recently opened offices.

Q. Does the firm need to prepare a separate inspection report for the ERISA audits inspected?

A. No. The firm may prepare a separate report on its inspection of ERISA engagements, or it may document the ERISA practice inspection scope and results in the firm's general monitoring/inspection documentation.

Q. How long does a firm need to retain its reports on its inspection of ERISA engagements?

A. The report and/or documentation should be retained for a period of time sufficient to enable those performing monitoring procedures and a peer review to evaluate the extent of the firm's compliance with its quality control policies and procedures.