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Bills would alter ERISA audit requirements.

Legislation now being debated in the House and Senate could substantially alter audit requirements under the Employee Retirement Income Security Act of 1974 (ERISA).

Currently, ERISA plan administrators can instruct independent accountants not to audit assets held in certain government regulated entities, such as banks. Some members of Congress have advocated eliminating altogether these socalled limited-scope audits (which account for about half of all required ERISA audits).

Last April, a General Accounting Office report was released recommending several changes in pension plan audits, including

* Requiring full-scope audits.

* Requiring auditors to report fraud and serious ERISA violations promptly to the Department of Labor if plan administrators do not.

* Requiting auditors to participate in a peer review program.

Legislation that would implement the GAO's recommendations is now before the House and Senate: HR 5158 was introduced by Congresswoman Marge Roukema (R-N.J.) and S2708 by Senator Orrin Hatch (R-Utah). The bills follow the GAO recommendations, except both the auditor and plan administrator would be responsible for concurrently reporting fraud or serious ERISA violations--rather than just the plan administrator.

Another important aspect of the legislation concerns notification when an auditor is terminated. The plan administrator would be required to file a report with the Department of Labor and to send a copy to the auditor. If the auditor did not receive a copy of the termination notice in the specified time or disagreed with it, the auditor would be required to file a report with the DOL.

AICPA responds. The GAO recommendations generally reflect positions taken by the American Institute of CPAs. The Institute has advocated full-scope audits since 1978 and agrees that plan administrators have a primary responsibility to report to the DOL. The Institute also requires peer review for its members.

However, the AICPA said it does not believe the plan administrator and auditor should have concurrent responsibility for reporting fraud and ERISA violations.

Another area of concern to the AICPA is that no safe-harbor provisions are included in the proposed legislation to protect the auditor from unwarranted legal liability.

In congressional testimony and in meetings with GAO and DOL officials, the AICPA stressed

* Audit deficiencies do not necessarily correlate with plan mismanagement or beneficiary risk.

* Factors that can place a plan participant,s benefits at risk are often beyond the scope of financial statement audits or the ability of independent accountants to influence.

* The most prominent of these factors is the quality of investment judgments made by plan administrators or investment fiduciaries.
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Publication:Journal of Accountancy
Date:Sep 1, 1992
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