Limited Scope Audits
As permitted by 29 CFR 2520.103-8 of the Department of Labor’s Rules and Regulations for Reporting and Disclosure under ERISA, a plan administrator is permitted to instruct the auditor not to perform any auditing procedures with respect to the information prepared and certified by a bank or similar institution or by an insurance carrier that is regulated, supervised, and subject to periodic examination by a state or federal agency and that acts as a trustee or custodian for the plan’s assets. This limited scope audit provision does not apply to information regarding investments held by a broker/dealer or some investment companies which are not chartered and regulated by a federal or state agency. Also, the election is available only if the trustee or custodian certifies both as to accuracy and completeness of the information submitted.
The limited scope exemption applies only to investment information including investments, investment income, and related expenses, as well as participant loans. Although participant loans are not characterized as investments for financial statement reporting purposes, participant loans are reported on the form 5500 as investments, and if held and certified by the trustee, would meet the exemption and not be subject to audit.
It is a common misunderstanding that the certification also applies to participant investment allocation and investment earnings allocated to the participant accounts. The certification only applies to investments and investment related information at the plan level. Auditors must still perform procedures to test the amount of investment income allocated to individual participant accounts. The auditor must also test to determine if the participant’s account is invested in accordance with the participant’s desired investment selections.