Audit & Accounting Alert

AT-A-GLANCE

The persistence of the COVID-19 pandemic can affect certain aspects of life in a variety of ways. Retirement is one such area. Those in retirement face the uncertainty of whether their funds will run out, while those still working wonder if they will ever be able to accumulate enough to retire. Governments have taken steps attempting to address those questions. Employers need to assess how to report on the measures impacting financial statement reports, while grappling with the more immediate concern of trying to stay in business. Accountants auditing pension plans have the challenge of evaluating plan viability and asset measurement, while considering broad new examination requirements coming on line next year. Vendors are preparing applications to facilitate the audit process for greater efficiency and accessibility in the new normal that is emerging. This edition of the Audit & Accounting Alert will highlight some of the implications for retirement and pension plans.
Our Worldwide Update is again split into two sections The first covers COVID-19 news from organizations across the globe, while the second covers other news

Special Remembrance

Members and friends of Integra International mourn the passing this past month of long time Global Board Member and past Global Chairman, Doug White. Beloved by all who had the good fortune of making his acquaintance, Doug was a tireless and multi-talented cheerleader for Integra International over more than two decades. Doug was always upbeat and filled with words of encouragement and wisdom for his fellow Integra International colleagues. A devoted family man, Doug affirmed his dear wife, Linda, and sweet daughter, Stephanie, as valued fixtures at Integra International conferences, a living testimony of Integra International’s culture, as one big family, of which all members are a part. Doug will be sorely missed and well-remembered for his priceless contribution to the continued success of Integra International.

Gerald Herter - Editor

Pension Plan Implications During Covid-19

Plan sponsors, participants, auditors and vendors feel the impact

Financial statement auditors have no higher calling than when examining the reports of employee benefit plans. These plans represent the accumulation and distribution of funds that have accumulated for years in order to provide for participants financially in their retirement. While major concerns have been mounting for years around underfunding of certain plans, especially in the governmental sector, the COVID-19 pandemic has exasperated those anxieties while also bringing new ones.

The excessive volatility of the stock market over recent months has exposed the fragility for retirees of 401(k) plans and IRAs in the United States, as well as for recipients of comparable plans in other parts of the world, that have relied on strong market growth over an extended period of time. While markets have rebounded somewhat, uncertainty remains. For those still in the work force and their employers, the ability to continue participation in and contributions to plans are in jeopardy, as are the very worker jobs and the survival of employers.

Governmental programs have begun to address these issues. The Coronavirus Aid, Relief, and
Economic Security (CARES) Act in the United States established the Payroll Protection Program (PPP) to provide assistance for employers to keep their employees, as well as to fund their pension plans. Also, plan distribution provisions were loosened so that financially affected participants can take early distributions without penalty, while retirees are not required to take distributions if not needed, thereby saving taxes. If a retiree has already taken a required minimum distribution (RMD) for 2020, the RMD will not be taxable if returned to the Plan by August 1, 2020. Plan loan provisions were made more generous in amount, while repayment terms were stretched out. Similar employee furlough and other assistance legislation in other countries covers these types of needs as well.

The PPP assistance was provided in the form of a forgivable loan. If certain requirements are met, the loan in effect becomes a grant. The American Institute of Certified Public Accountants (AICPA) issued guidance in June 2020 on the accounting treatment by recipient entities. The guidance noted that the US Securities and Exchange Commission staff were agreeable to accounting for the assistance as debt under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 470, Debt, or in a manner described by International Accounting Standard (IAS) 20, Accounting for
Government Grants and Disclosure of Government Assistance. IAS 20 was issued by the International Accounting Standards Board (IASB), which is the authority that governs financial reporting for most plans outside of the United States. Under FASB ASC 470, the assistance is recorded as a liability until it is legally released, at which time the liability is eliminated as gain on extinguishment. IAS 20, which relates directly to this type of transaction, would have the assistance recorded as a deferred income liability until forgiven, when the liability is transferred to other income or as a reduction of the related expense (i.e. payroll) over the time period the expense is incurred. A not-for-profit entity could use the FASB ASC 470 treatment, or FASB ASC 958-605, Not-for-Profit Entities—Revenue Recognition, where a refundable advance is recorded and converted to contribution income upon forgiveness.

For auditors of employee benefit plans (EBP), issues similar to those found in business entity audits, such as asset valuations and going concern, need to be addressed. Additionally, for US auditors, Statement on Auditing Standards Number 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, originally scheduled to go into effect at the end of 2020, has been delayed until the following year. As reported in last September’s Audit & Accounting Alert, SAS 136 “addresses the auditor’s responsibility to form an opinion and report on the audit of financial statements of employee benefit plans subject to the Employee Retirement Income Security Act of 1974 (ERISA), and the form and content of the auditor’s report issued as a result of an audit of ERISA plan financial statements. The SAS includes new requirements for: engagement acceptance, audit risk assessment and response, communications with those charged with governance, procedures for an ERISA section 103(a)(3)(C) audit, [and] considerations relating to the Form 5500.” The substantive changes in audit conditions and requirements will most certainly cause a dramatic increase in audit fees.

With the substantial challenges arising from the pandemic, the additional year to plan for SAS 136 implementation is welcomed by auditors. Anticipating that the new standard would be effective this year, the AICPA in partnership with CaseWare recently released a new cloud-based audit application, OnPoint EBP, to facilitate the audit process. According to the AICPA, OnPoint EBP is “designed to facilitate the efficient and effective performance of “limited scope” employee benefit plan audits.”

AICPA Statement on Reporting Forgivable Assistance Loans

IAS 20 Accounting for Government Grants and Disclosure of Government Assistance

https://www.aicpa.org/content/dam/aicpa/interestareas/frc/downloadabledocuments/tqa-sections/tqa-section-3200-18.pdf

https://www.ifrs.org/issued-standards/list-of-standards/ias-20-accounting-for-government-grants-and-disclosure-of-government-assistance/