Audits of 401(k) Plans

Chapter 5 AUDITING THE STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS

LEARNING OBJECTIVES

After completing this chapter, you should be able to do the following:

•     Indicate the activity reflected in the Statement of Changes in Net Assets for Benefits.

•     Identify the audit procedures required for investment income, investment expenses, and contributions.

INTRODUCTION

The Statement of Changes in Net Assets Available for Benefits shows the activity that has occurred (additions and deductions) in the 401(k) plan during the plan year. Additions include net realized gains (interest, dividends, and gains or losses on sales of investments) earned on the investments of the plan as well as unrealized gains or losses (the change in fair value of the investments). Contributions from the plan sponsor or from participants also are additions to the plan. Deductions are usually payments to participants who have retired or terminated employment as well as administrative expenses. Other changes (for example, transfers of assets to or from other plans or demutualization proceeds) should also be presented separately, if they are significant.

It is an acceptable practice for certain types of investments (for example, mutual funds, investments in a master trust, common or collective trust, or pooled separate accounts) to net all the realized gains and losses and the unrealized gains and losses into one net number, called net investment gain/ loss or net appreciation/ depreciation ...