The COVID-19 pandemic has forced many businesses to furlough or lay off employees. If your business has had recent layoffs, you should understand how that may affect your 401(k) audit. Knowing what to expect and having a plan in place will prevent your business from further financial issues during these difficult economic times.
How Layoffs May Impact Your Audit
Your 401(k) CPA will consider any major changes with your plan participants when conducting your audit. If you’ve had to lay off employees, expect your auditor to pull a bigger sample. There may be an increase in distributions taken by the plan participants, and auditors base their sample sizes on the number and size of transactions.
You should also expect more questions from your auditor than usual. They’ll need to review new procedures or controls put in place due to the pandemic, and they’ll want to verify that the controls used before the pandemic are still in operation.
Your audit may involve additional disclosures, too. These disclosures should provide any information the auditor needs to clarify changes in the plan. Because the pandemic has caused such massive changes for many businesses, expect to provide more disclosures than usual and spend more time discussing these disclosures with your auditor.
How to Prepare
Taking plenty of time to prepare and gather information is the best way to get through your 401(k) audit with no trouble. Track down all of the relevant documentation well before your audit to ensure you have everything you need. This includes plan documents, payroll records, and human resources information. If the staff that usually manages these documents have been laid off or furloughed, it’s especially important that you are careful and thorough when collecting documentation.
Now is also a good time to review the plan’s controls and processes. It may be wise to make some changes to your processes if your working environment has changed drastically because of the pandemic. You should be able to explain to your auditor how your plan has changed this year.
To help the audit run smoothly, reach out to the auditor well in advance. They may be working remotely, or their schedule may have changed due to COVID-19. Connecting with them before the audit will ensure that both parties are on the same page.
If your business has been affected by the coronavirus pandemic, your upcoming 401(k) audit may look different than it did in previous years. It’s critical that you understand how the plan has changed and that you prepare all the necessary documents before you meet with your auditor. To reduce stress and confusion during the audit, plan ahead, and be thorough.