RISK ASSESSMENT STANDARDS 

• What did we gain?
  • Effective Planning
  • Better understanding of clients
  • Better understanding of controls
  • Linkage – risks and audit procedures
  • More forms!
  • Efficiency?
   
• What really surfaced from risk brainstorming?
  • Better interaction amongst engagement teams
  • Understanding of assertions
  • Audit approach changes
  • Risk determination
    • Plan transfers, increased rollovers, plan expenses
     
   
• Applying the Audit Risk Model
  • Gather Information about the Plan and its environment, including internal control
  • Understand the Plan and its environment, identify what could go wrong
  • Assess the risk of material misstatement; risk identification and description; consideration of significance and likelihood
  • Design overall responses and further audit procedures
   
• Understand the design and implementation of internal controls on every audit
  • Walkthroughs
  • ALSO assess the operating effectiveness if placing reliance on the controls and thus testing controls
   
• Applying the Audit Risk Model
  • Gather Information and understand the Plan and its environment
  • 2008 market volatility will impact planning in regards to this understanding and general economic conditions
    • impact of market risk on all plans
    • consideration of discount rates for DB Plans
    • funding requirements for DB Plans
    • impact of market conditions on Plan Sponsors
      • timeliness issues
       
     
   

RISK ASSESSMENT AND AUDIT STRATEGY 

• Key areas to consider in a plan audit when assessing risk:
  • Plan governance
  • Contributions received and receivable
  • Participant account activity (contributions, distributions, allocations.)
  • Expenses (DOL substandard audit area)
  • Investments, existence of alternative investments
  • Plan changes; Plan sponsor changes
  • Competence of third party service providers and plan personnel
  • Prior period misstatements
   
• Assessment of risk of material misstatement is addressed as it relates to:
  • Financial statement-level risks and
  • Assertion-level risks
   
• Financial statement-level risks:
  • Relate pervasively to the financial statements taken as a whole
  • Affect many relevant assertions
  • Addressed in terms of the materiality determined at the financial statement level
   
• Identify risks relating to structure and governance
  • Does the plan have a complex operating structure or design?
  • Multiemployer plan
  • Plan merger
  • Changes in plan management or service providers
   
• Plan governance
  • Powerful impact on Plan operations and the Plan audit
  • Same service providers and different levels of governance amongst plans impacts risk
   
• Identify risks related to the plan sponsor’s:
  • Financial condition
  • Economic environment
  • Specific plan investments
  • Financial reporting
  • Information technology
  • Personnel
  • New developments in accounting or industry
   
• Relevant assertion-level risks – risks of material misstatement relating to specific:
  • Classes of transactions (did the activity in participant accounts actually occur during the period covered by the financial statements, etc.)
  • Account balances (investments, receivables, payables) and disclosures
  • Disclosures
   
• Audit areas encompass the related account balances, transaction classes and disclosures
• Major audit areas include:
  • Material account balances (investments, contributions receivable)
  • Material transaction classes based on size or volume of transactions (participant level activity)
  • Susceptibility to fraud
  • Areas usually requiring audit adjustments
   
• Risk assessment should identify significant risks which are risks that require special audit consideration:
• Significant risks arise on most audits
  • Fraud risks are normally significant risks
   
• Areas with potential significant risk in a Plan audit could be:
  • Investments without readily determinable market value
  • New investments
  • Operational Defects
  • SAS 70 Errors
  • Non routine transactions
  • Completely paperless transactions
  • Timeliness of deposit of participant deferrals
  • Parties in interest and prohibited transactions
  • Accounting estimates (actuarial, IBNR, post retirement)
   

RISK ASSESSMENT STANDARDS 

• What to do for 2008 Plan year ends
• Keep the planning going!
• Further streamline forms
• Look ahead to SAS 115! Communicating Internal Control Related Matters Identified in an Audit – supersedes SAS 112.
• Start dialogue on FASB 157 NOW!