New Department of Labor pension audit quality enforcement initiative.

The U.S. Department of Labor's Employee Benefits Security Administration has begun a new enforcement initiative to monitor the quality of audits of employee benefit plans subject to ERISA. This important and ongoing DOL effort includes the initial selection of more than 500 audits for DOL to review over the next few years.

The penalties for audit failures can be substantial. Penalties can be assessed on plan sponsors of up to $1,100 a day (capped at $50,000) per annual report filing where the required auditor's report is missing or deficient. Because there is a significant amount of risk to plan sponsors associated with ERISA audit engagements, plan sponsors should make the selection of a quality plan auditor a high priority.

A two-pronged approach is being used for the DOUs review of ERISA plan audits. For firms that perform a limited number of employee benefit plan audits, the DOL will send letters to the plan administrator requesting copies of selected audit workpapers. For the largest CPA firms, the DOL will use a firm-wide inspection approach similar to Public Company Accounting Oversight Board inspections of SEC issuers. Those reviews will include a review of the firm's ERISA audit practice, as well as a review of individual ERISA audit engagements performed by that firm.

The AICPA Employee Benefit Plan Audit Quality Center has prepared a question-and-answer document explaining the new DOL initiative and suggestions to assist plan sponsors on how to obtain quality audit services (available on www.aicpa.org/ebpaqc). For more information about the new DOL audit quality enforcement program, contact Michael E. Auerbach, Chief, Division of Accounting Services, EBSA at 202/693-8363 or by e-mail at [e-mail].

Auditing Standards Board Issues New Standards

The AICPA's Auditing Standards Board has issued Statement on Auditing Standards No. 102, Defining Professional Requirements in Statements on Auditing Standards (No. 060705CPA01), Statement on Auditing Standards No. 103, Audit Documentation (No. 060706CPA01), and Statement on Standards for Attestation Engagements No. 13, Defining Professional Requirements in Statements on Standards for Attestation Engagements (No. 023032CPA01).

SAS No. 102 and SSAE No. 13:

a. Define the terminology the ASB will use to describe the degrees of responsibility that the requirements impose on the auditor or the practitioner.

b. The auditor or practitioner is required to comply with an unconditional requirement in all cases in which the circumstances exist to which the unconditional requirement applies. An unconditional requirement is indicated by the words must or is required.

c. The auditor or practitioner is also required to comply with a presumptively mandatory requirement in all cases in which the circumstances exist to which the presumptively mandatory requirement applies; however, in rare circumstances the auditor or practitioner may depart from a presumptively mandatory requirement provided he or she documents the justification for departure and how alternative procedures performed in the circumstances were sufficient to achieve the objectives of the presumptively mandatory requirement. The word should indicates a presumptively mandatory requirement.

d. SAS No. 102 also amends paragraph .04 of AU section 150, Generally Accepted Auditing Standards (AICPA, Professional Standards, vol. 1), by requiring the auditor to document his or her justification for a departure from a presumptively mandatory requirement in the working papers.

SAS No. 103 establishes standards and provides guidance to an auditor of a non-issuer on audit documentation. SAS No. 103 supersedes SAS No. 96, Audit Documentation.

SAS No. 103 also amends paragraphs .01 and .05 of AU section 530, Dating of the Independent Auditor's Report, Codification (AICPA, Professional Standards, vol. 1). The amendment requires that the auditor's report not be dated earlier than the date on which the auditor has obtained sufficient appropriate audit evidence to support the opinion on the financial statements.

To obtain copies of SAS 102, 103 or SSAE 13, contact the AICPA Service Center (see page 5; price each SAS: $19/member, $23.75 non-member; price SSAE: $19 member/$23.75 non-member).

Broker-Dealer Financial Statement Requirements Extended

On Dec. 7, 2005, the Securities and Exchange Commission extended an Order originally issued on Aug. 4, 2003, and extended on July 14, 2004, permitting non-public broker-dealers to file with the Commission and send to their customers financial statements certified by an independent public accountant instead of certified by a registered public accounting firm for fiscal years ending before Jan. 1, 2007.

Section 17(e)(1)(A) of the Securities Exchange Act of 1934 requires that every registered broker-dealer annually file with the Commission a certified balance sheet and income statement, and Section 17(e)(1)(B) requires that the broker-dealer annually send to its customers its "certified balance sheet." The Sarbanes-Oxley Act of 2002 established the board and amended Section 17(e) to replace the words "an independent public accountant" with "a registered public accounting firm."

The Act establishes a deadline for registration with the board of auditors of financial statements of "issuers," as that term is defined in the Act. The Act does not provide a deadline for registration of auditors of broker-dealers that are not issuers (non-public broker-dealers). Application of registration requirements and procedures to auditors of non-public broker-dealers is still being considered. The Commission also is considering whether to issue a concept release on the subject. For more information, contact Rose Russo Wells at 202/551-5527 (Rel. 34-52909).