Comment Period Open for AICPA Audit and Accounting Guide for ESOPs

Many ESOPs are required to file audited financial statements with their annual Form 5500 filing to the IRS and DOL. There has been little technical guidance available on how these audits should be performed, and many ESOP sponsors, trustees, valuation advisors, and auditors have requested such guidance. The American Institute of CPAs (AICPA) has just issued a working draft of the financial reporting standards for ESOPs to be included in the AICPA Audit and Accounting Guide Employee Benefit Plans. The auditing content will be published later.

The purpose of a working draft is to provide the opportunity for comment on the proposals from preparers, auditors, users of ESOP financial statements, and other interested parties. The Financial Reporting Executive Committee of the AICPA invites comments on all matters in the proposed chapter and appendix. In their comments, respondents should refer to specific paragraph numbers and include reasons for any suggestions.

The working draft includes two areas that should be of particular importance to the ESOP community:

1. The chapter includes an appendix that describes the fundamental tax and ERISA rules governing ESOPs. The intention of this appendix is to help the auditor understand the plan under audit. As such, the ESOP community is requested to review the appendix to highlight other opinions that should be considered in addition to those of the authors and any additional topics that should be considered for inclusion.
2. Critically, the working draft introduces the notion that the ESOP valuation used for measuring the value of shares for participant distributions should be considered the "principal market" in determining fair market value. If this concept is determined to be appropriate in most ESOP fact patterns, it would eliminate the issues currently presented on whether "fair value" under generally accepted accounting principles is different than "adequate consideration" or "fair market value" as typically used by the ESOP trustee.

The working draft can be accessed on the AICPA Financial Reporting Center. [Note: see paragraph X.42 of the working draft for ESOP-related text]. Comments are due by June 19, 2015.

Thanks to Becky Miller at McGladrey.