How Addressing Open Audit Issues Can Help Increase Your Audit Rating

Increasing your audit rating by addressing open audit issues is an effective strategy for your organization. An open audit allows the audit committee to focus on the various aspects of the business and set priorities to ensure continuous success. As a manager or preparer of the audit process, you will need to show the audit committee the rationale behind your choices.

Increasing Your Audit Rating by Focusing on Open Audit Issues

Businesses have different ways to record and document daily performance. Increasing your audit rating requires an effective audit management system. Begin by addressing open audit issues. When meeting with you audit committee, provide them with all the necessary materials. If you leave out information, the findings will not be accurate.

Exact Representation of the Issues

Provide accurate findings in an audit report. An exact representation helps to calculate risks. If you provide the wrong or overstated details, the full business picture is not accurate. Overrated or understated audit ratings may greatly affect the business in the upcoming fiscal cycle.

  • Provide detailed information on current risk assessments
  • Show current trends affecting your business
  • Use automated software to help develop accurate report documents

If an audit committee spends more time going over suspected issues, the committee may decrease your rating or continue to debate the existing rating. Providing clear findings of the audit issues will help the committee to track trends. Basing appropriate actions to address the open issues from the trends will help move the company forward.

Provide Documentation

Showing and providing the committee with accurate documentation for your findings ensures the credability of your organization. By focusing on your records, reports and generated findings, you may increase your audit rating.

  • Always provide reports with up to date information
  • Provide graphs and statistics for the visual use during the meeting
  • Provide links to other materials that support your findings and trends

Failing to provide the right documentation at the audit meeting will decrease your internal audit quality. The result may negatively affect your audit rating.


With any form of issue or problem within a business, the focus must be on finding an effective solution. Addressing open issues will move the audit committee away from the problem to the resolution. Understanding all aspects of the audit report will allow the committee to move away from a rating debate.

  • Reassess your current audit rating system. Is the type of system still a recommended choice for your organization? Has your company outgrown the current method?
  • Focus on current issues. How are the current issues affecting the daily running of the business?
  • Develop effective communication methods to convince the audit committee the nature of your findings. Are the results being represented correctly in the meeting?
  • Assess risk factors and implement control options. What are the next available moves to increase the current audit rating?

Audit management is an effective strategy for increasing your audit rating. You will need to provide quality audit findings to ensure your organization is operating at the desired level of performance.  At Ernst Wintter & Associates, we are committed to offering businesses accurate and detailed audits.  If you are looking for tips on how to gather the appropriate documentation or finding an effective solution to a problem that has arisen, contact us today at


Full Scope or Limited Scope Audit – Which One and Why?

When planning for an audit of your 401(k) or other retirement plan, you might question if a full scope audit or limited scope audit should be conducted.  It is important to determine if your plan requires an audit, and know your options. Failure to comply with audit requirements can lead to a host of long-term complications for your business.

Is an Audit Required for My Company’s Retirement Plan?

Retirement plans are subject to U.S. Department of Labor and IRS regulations. For the protection of investors, these agencies ensure that they are appropriately managed. Generally, qualified benefit plans with 100 or more eligible participants, as of the first day of a plan year, require an audit. Each employee who is eligible to contribute to the plan is treated as an eligible participant, whether they contribute or not. Retirees and separated participantsalong with the beneficiaries of deceased participants who are receiving benefits, or are entitled to receive benefits, are also treated as eligible participants.

The regulations surrounding 401(k) audits are strict and complex. Non-compliance can lead to expensive fines and litigation. Trusting an experienced auditor to advise you throughout the audit process is essential to avoiding complications.

Full vs. Limited Scope Audit – Which is right for me?

Limited Scope Audits

To qualify for a limited scope audit, an insurance carrier or bank must act as the trustee or custodian for the plan. This entity must be state or federally chartered and regulated, supervised and subject to examination. The trustee must also certify to the accuracy and completeness of any investment information.

A limited scope audit works well for some. They usually come along with lower fees and fewer areas subject to audit testing. It’s important to note that the accounting firm that is charged with performing a limited scope audit cannot give an unqualified opinion on the plan’s financial statements. An unqualified opinion is an independent auditor’s report that your financials are fair and accurately presented. Reports that accompany limited scope audits are referred to as a Disclaimer of Opinion.

Full Scope Audits

In a full scope audit, audit work is performed on the plan’s investments. Procedures include sending confirmations to the custodian, trustee or insurance company to verify ownership of investments, along with the valuation of investments, investment transactions and investment income.

The accounting firm performing the full scope audit, will provide an independent auditor’s opinion on the plan’s financial statements.

The independent auditors’ report, financial statements and required schedules are filed with the Department of Labor. This is due on the last day of the 7th calendar month after the end of the plan year, unless an extension is requested.

It is vital for small to mid-size businesses to plan for the appropriate full or limited scope audit of their 401(k) plan. Contact Ernst Wintter & Associates at <a href=”tel:9259332626″>(925) 933-2626</a> to discuss your audit questions and determine which option is best suited for the unique needs of your business. 

Employee Benefit Plan Audit Requirements

An employee benefit plan audit is subject to rules based on the Employee Retirement Income Security Act of 1974 (ERISA). This law was passed to protect the interests of employees with retirement plans such as 401k plans. ERISA rules for an employee benefit plan audit include reporting information to the Department of Labor and the Internal Revenue Service in accordance with generally accepted auditing standards (GAAS). All plan participants must be given access to this information on an annual basis. Here are other requirements administrators must follow for an employee benefit plan audit.

Small vs. Large Employee Benefit Plans

Usually only small employee business plans are allowed to waive the audit, which is up to the employer. More substantial plans with over one hundred eligible participants at the start of the plan year must generate an audit as a section of the required 5500 annual return form. Eligible participants, which are not to be confused with active plan participants, are defined as all individuals, whether active or not, that meet the eligibility requirements of participating in a qualified cash or deferred plan. Many administrators have misunderstood this wording to mean they are allowed to waive the audit as a small plan. This mistake can lead to huge monetary penalties from the Department of Labor, which is why experienced professionals must conduct a quality employee benefit plan audit.

Determining Audit Type

You must determine between a full or limited scope employee benefit plan audit for a 401k. A Full Scope Audit is necessary when the certification is unavailable for the portfolio’s custodian, who only holds a Type I SAS 70 report. In this scenario the auditor must test the custodian’s investments, which can take substantially more work. A Limited Scope Audit, on the other hand, in which the custodian holds a Type II SAS 70 report, only requires the auditor to test the participant data. The one exception to the large employee benefit plan audit is the “80-120 Participant Rule,” in which the Form 5500 annual report can be filed the same way as the previous year if the plan includes 80 to 120 participants at the start of the plan year. In other words, the option to waive the audit is possible if there were no audit the previous year.

How to Proceed

Contact Ernst Wintter & Associates for your 401k plan needs. They are Certified Public Accountants that provide audit services for employee benefit plans, as well as the securities industry and nonprofit organizations, which meet compliance standards of the DOL and IRS. The firm has been in business for over 25 years with expertise in small to midsize business employee benefit plan audit services and has a wealth of knowledge and experience to share about auditing and taxes.

401k Audit – Is Your Company Prepared?

If you currently sponsor a 401k plan for your employees, you should be aware of the accounting and audit responsibilities that are an essential part of the program. Commitment to this retirement program demonstrates your focus on employee welfare and retention, but it also requires a strong strategic approach to be successful. Performing an annual 401k audit for reporting purposes is a crucial part of the program.

Employing an Independent Auditing Firm

Larger companies usually have a staff of CPAs and an accounting firm on retainer to ensure that the company’s 401k program is kept in compliance and that the associated Form 5500s are filed properly. They perform an annual 401k audit to keep the company’s plan organized and using best practices.

Smaller and medium-sized companies usually can’t afford to hire a full-time qualified staff to conduct their own 401k audits. Working with a highly qualified independent accounting firm to perform a 401k audit is critical to ensure best practices and avoid expensive, time-consuming activity to comply with IRS standards. A properly audited plan is essential to avoid IRS fines and penalties, and will save you time over the long run.

Preparing for an Independent 401k Audit 

Your independent auditors should be highly experienced and knowledgeable about all IRS and Department of Labor regulations related to 401k programs. Since these individuals will be delving into the inner elements of your business, you should adequately prepare in order to make their job easier. Time is money. Ensuring a speedy process saves you money in paying less of their time and also minimizes disruption to your office’s day-to-day activities.

Suggested preparation steps:

  1. Interview and select an independent auditing firm with substantial experience with 401k audit compliance.
  2. Organize a group of key personnel with detailed knowledge of the plan documentation for their area of responsibility. One person should chair the group and set the expectations and guidelines.
  3. Committee should organize 401k audit documentation according to a consistent format for each department or subset of the company.
  4. Provide a Summary Plan Description.
  5. Provide a list of participants with their current status.
  6. Create a Summary of Asset Records.
  7. Do the numbers add up? A calculation of total salary paid in the prior year against the sum of participant contributions and withdrawals to ensure that the balances are accurate.
  8. Eligibility: are all participants eligible according to your plan guidelines? Are all program loans in compliance?
  9. Provide copies of Forms 5500 from the previous three years.
  10. Provide a copy of the Fiduciary Liability Policy.

Talk With Ernst Wintter & Associates About Your 401k Program Audit

Once you have determined that your company needs an audit, contact Ernst Wintter & Associates. Our mission is to make the process as painless as possible and to relieve you of any fear of an IRS or Department of Labor audit. Our CPAs in Walnut Creek will discuss all aspects of the audit and ensure that the process is performed efficiently with minimal disruption to your normal daily routine. Call us today for all of your accounting needs.