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Employee Plans Compliance Unit (EPCU) - Completed Projects with Summary Reports - Adverse Accounts Opinion Project Summary Report

Summary:

Plans reporting having received an adverse accountant’s opinion in tax periods ending December 31, 2004 – December 31, 2006 were identified. In reviewing the filed returns, each included an attachment to the return indicating the accountant had issued a disclaimer of opinion.

Compliance contact letters were sent out to 23 plan sponsors on December 10, 2007, meeting project criteria to determine whether or not the reporting of an adverse opinion was accurate.

The focus of this project was to determine whether or not plan sponsors are accurately reporting receiving an adverse accountant’s opinion, and if all applicable Forms 5330 were filed, and make referrals for examination as appropriate.

Results:

All but one of the responses indicated they had instead received a disclaimer, and the adverse accountant’s opinion reported on the return was an error. The one sponsor responding they had received an adverse opinion indicated the opinion was issued based on findings of the Department of Labor (DOL), not the accountant.

The table below shows the project findings based on the plan year.

Plan Year Checked Incorrect Box – Disclaimer Attached Checked Correct Box – Adverse Opinion Total
200412 – 200511 12 0 12
200512 - 200611 9 1 10
200612 1 0 1
Total 22 1 23

Plan sponsors should be careful when reporting the opinion received from their IQPA in Part III of Schedule H. If you received a disclaimer of opinion, check box 3a(3). A disclaimer of opinion is issued when the IQPA does not express an opinion on the financial statement because he or she has not performed an audit sufficient in scope to enable him or her to form an opinion on the financial statements. Checking the correct box will avoid unnecessary correspondence from the IRS.

Background:

The administrator of an employee benefit plan who files a Schedule H with their Form 5500 generally must engage an Independent Qualified Public Accountant (IQPA) pursuant to ERISA section 103(a)(3)(A) and 29 CFR 2520.103-1(b). The appropriate box must be checked on line 3a, Schedule H, to identify the type of opinion determined by the accountant: "Unqualified", "Qualified", "Disclaimer", or "Adverse". The accountant’s report must be attached to the Form 5500, unless line 3d(1) or 3d(2) on the Schedule H is checked stating the reason the IQPA’s opinion is not attached. In addition, plans issued an adverse opinion are often in violation of terms and conditions of their plan document and therefore may be subject to various excise taxes applicable to employee plans.

An adverse opinion is generally issued by an IQPA when the financial statements do not present fairly, in all material respects, the financial status of the plan as of the end of the audit period and the changes in its financial status for the period under audit in conformity with Generally Accepted Accounting Principles or Other Comprehensive Basis of Accounting.

This project reviewed the plans where the box on Schedule H line 3a(4) is checked indicating an adverse accountant’s opinion has been given.

The project goals were to:

  1. Determine whether the identified universe of plan sponsors correctly reported receiving an adverse accountant’s opinion for the plan period.
  2. Determine whether appropriate correction occurred and whether Form(s) 5330 - Return of Excise Taxes Related to Employee Benefit Plans were applicable, and if so, appropriately filed.
  3. Determine if an adverse accountant’s opinion was actually received by the plan and understand the reasons for that opinion.
  4. Identify plan sponsors with situations warranting referral to Employee Plans Examinations for more in-depth reviews.
Page Last Reviewed or Updated: 01-Nov-2016