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Navigating peer reviews and DOL inspections of 401(k) audits

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Peer reviews and Department of Labor inspections of 401(k) audits can be challenging for CPA firms, especially small and midsized firms. Auditors often find themselves facing questions about their methods, documentation, and procedures, with feedback ranging from legitimate findings to subjective preferences. 

Knowing how to distinguish between what is required by standards and what is opinion is crucial for auditors to confidently navigate these reviews and inspections.

Before diving into some real-world examples, it’s important to emphasize that understanding the standards governing 401(k) audits is non-negotiable. Compliance risks in auditing employee benefit plans can have serious consequences for CPA firms, including heavy fines, reputational damage, and, in extreme cases, the loss of a firm’s license to practice. 

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These risks underscore why it’s vital for firms to fully understand the nature of any findings they face and the reasons behind them. To effectively defend against a reviewer’s findings, auditors must not only be familiar with the standards but also be able to reference them during reviews. Having a deep understanding of the standards empowers CPA firms to push back when necessary and confidently challenge findings that are based on subjective opinions rather than clear requirements.

The fine line between standards and opinion

A good example of this confusion is the issue of audit documentation for Form 5500 filings. As part of the audit procedures, the auditor must obtain and read the draft Form 5500 to identify material inconsistencies, if any, with the audited ERISA plan financial statements. However, nowhere in the codified standards does it say that a final copy must be maintained in the audit binder when management agrees to make the requested changes. 

Consider this real-world situation: As part of an audit, “Sam” reviewed the draft Form 5500, and identified material inconsistencies that needed to be corrected. Both management and the service provider agreed, and the changes were made to Form 5500 so no material inconsistencies remained. 

However, the changes were made on October 15, and Sam did not place the final draft in the audit binder, leaving only the original draft in the documentation. A peer reviewer dinged Sam’s firm, claiming that a final copy should have been in the binder.

What’s the standard? The standard is to review the draft Form 5500 to ensure that it is substantially complete and doesn’t contain material inconsistencies, which is exactly what they did. If Sam’s CPA firm had familiarized themselves with the standards — in this case, AU-C Section 703, “Considerations Relating to Form 5500 Filing” — they could have confidently pushed back against the peer reviewer. Instead, they accepted the penalty, not because of a legitimate issue, but because the auditor didn’t know the standard well enough to defend his position.

Key takeaway: If you’re facing findings, always refer to the specific standards. If the standards don’t explicitly require what the reviewer is claiming, it’s a subjective opinion, not a matter of compliance. Don’t be afraid to push back when necessary.

You don’t get points for extra credit

Confusion doesn’t always start at the peer review level. It can happen before the audit is submitted, among your own audit team. A good example of this involves whether auditors are required to verify the census data used for plan compliance tests, such as discrimination testing.

A compliance officer at a CPA firm wanted her audit team to verify the accuracy of the census data used in compliance testing. One of her auditors pushed back, pointing out that nowhere in the standards does it say auditors must reperform compliance tests or verify census data. 

Instead AU-C 703, Section .A31 only requires auditors to confirm that a plan’s TPA has performed the relevant IRC compliance tests, and whether any failures were identified and corrected. The auditor is only responsible for ensuring that the plan performed the required tests and passed, not for redoing the tests themselves.

What’s the lesson? Auditors are often pressured to perform steps that aren’t required by the standards. In this case, verifying the census data might seem like thorough auditing. How else would you know they passed correctly if you didn’t also know the census data was accurate? But it’s not required. As long as the compliance testing has been performed and reviewed by management, the standard is satisfied. Double-checking the compliance testing only adds unnecessary time to what is already a laborious audit process.

Key takeaway: Understand what is required by the standards and what is simply “nice to do.” Over-auditing isn’t necessary and can lead to inefficiencies. Know where to draw the line between what’s required and what’s not.

What you don’t know can hurt you

Another area of confusion arises when it comes to testing benefit payments and distributions in defined contribution plans. The AICPA Auditing and Accounting Guide for Employment Benefit Plans provides several acceptable methods for testing participant benefit distributions and withdrawals. Some methods make sense in today’s digital age — others, not so much. 

A DOL agent reviewing a 401(k) audit claimed the audit was deficient because the firm didn’t use cancelled checks to test benefit payments. However, the auditor had used an alternative method: comparing the payee’s name on electronic funds transfers to participant records, which is a satisfactory method explicitly mentioned in the AICPA Guide (Chapter 5, “Auditing Considerations for DC Plans”). The DOL agent argued that without the cancelled checks, the benefit payments couldn’t be fully tested.

What’s the lesson? The AICPA Guide lists several methods for testing benefit payments, including comparing EFT records. Cancelled checks, while still a valid testing approach, are no longer commonly returned by banks, making it an impractical method in today’s world. By pushing back with reference to the audit guide, the auditor successfully convinced the DOL agent that their approach was compliant, even though it wasn’t the method the agent preferred.

Key takeaway: Know the multiple methods allowed by the audit guide for testing benefit payments. If a peer reviewer or inspector prefers a method that’s not required by the guide, don’t hesitate to defend your choice of an alternative method.

Practical tips for navigating peer reviews and DOL inspections

While peer reviews and DOL inspections can seem intimidating, you can protect yourself and your firm by taking a few simple steps:
1. Know the standards: This can’t be emphasized enough. If you’re uncertain about a finding, look it up. Knowing the codified standards allows you to differentiate between subjective opinion and objective requirements.
2. Be ready to push back: Not all findings are grounded in standards. Some reflect personal preferences or common practices that aren’t required. Always ask for clarification on where the requirement is codified before accepting a finding.
3. Document, document, document: Proper documentation is key. Whether it’s the Form 5500 review or compliance testing, maintain thorough records. This doesn’t mean you need to over-audit, but it does mean you need clear evidence of compliance with the required steps.
4. Use the AICPA Audit Guide: This resource is invaluable for addressing many of the grey areas in 401(k) audits. Refer to the guide when determining which procedures to follow, especially in areas like benefit distributions where there are multiple testing methods.
5. Seek clarification on ambiguities: When faced with a finding that you’re unsure about, consult with the AICPA’s audit guide or the standards. Engage in a constructive dialogue with peer reviewers or DOL inspectors to clarify what’s required versus what’s a matter of personal preference.
Navigating a peer review or DOL inspection of your 401(k) audit can be complex, but it doesn’t have to be daunting. The key to success lies in your understanding of the standards, knowing when to push back against subjective opinions, and using the right resources to support your audit process. 

As demonstrated in the examples above, a strong grasp of the ASC and the AICPA’s audit guide can be the determining factor between a successful audit review and one that results in costly penalties or even a failed inspection. Stay informed, stay prepared, and always ensure your practices align with the written standards — not subjective opinions.

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Accounting

Tariffs collide with taxes in Trump bill

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The tax reconciliation bill making its way through Congress is expected to add trillions of dollars to the national debt, but the Trump administration hopes to offset the cost through income from tariffs. Accountants are helping worried companies deal with the possible fallout.

“Obviously, tariffs create a lot of uncertainty,” said Tom Alongi, a partner and U.S. national manufacturing practice leader at UHY, a Top 50 Firm based in Farmington Hills, Michigan. “But with uncertainty for U.S. manufacturers, it creates a lot of opportunity. And for those that are contract manufacturers that use a lot of offshoring, it creates a tremendous amount of angst, especially among the auto industry that really over the last three decades has turned into a global supply chain as we’ve been in a race to the bottom to reduce costs.”

UHY has been helping CFOs deal with the changing tariff policies coming out of the White House. “A lot of companies don’t even realize how deep some of their supply chain and where some of their raw material and purchased components ultimately originate,” said Alongi. 

That involves quantifying the impact, understanding the origin of components and raw materials, and where that fits in the Harmonized System that’s administered by the International Trade Administration, making sure everything is classified correctly. 

The Trump administration hopes to convince more companies to relocate their manufacturing operations to the U.S. But companies are also looking at changing their sourcing to other countries if they’ve been relying too heavily on Chinese-made supplies amid the ever-changing tariff pronouncements.

“That uncertainty does create challenges within our clients of allocation of capital,” said Alongi. “Do I make big bets to transition if I have a huge amount of risk that is isolated in a certain country? What do we potentially do to mitigate that risk?”

Auto manufacturers need to look at the proposed changes to tax credits in the tax bill, including reductions in electric vehicle tax credits and other tax incentives for renewable energy.

“I always knew that it is a great alternative source that fits certain consumers, but I never believed that it was going to take over the world,” said Alongi, who has been driving an EV for over seven years. “The tax credits create a behavior, and they incentivize people to drive electric.” 

The shortcomings in the national infrastructure for charging EV batteries disincentivize broader takeup, and the disappearance of the tax credits would make the vehicles even less affordable.

CBIZ, a Top 10 Firm based in Cleveland, launched an Integrated Tariff Solutions program earlier this month for its clients nationwide, offering support across finance, operations, supply chain strategy, tax and compliance. 

“Like so many other middle-market companies, certainly the larger companies, in this environment, there’s more demand for advice on mitigating exposure,” said Mark Baran, managing director of CBIZ’s National Tax Office. “Tariffs have been relatively low for a long time, and now the supply chain, pricing, vendor relationships and locations of where goods are manufactured need a fresh look.”

Different industries are looking for help, including manufacturing, construction and import. “They’re really looking at how to mitigate these costs, which don’t appear to be slowing down,” said Baran. “It could be temporary, but it’s not right now. So we have developed a number of different avenues to assist our clients, whether it’s evaluating inventory and how to properly account for inventory, whether it’s seeking to help them find locations in the U.S. if they want to bring their manufacturing back to the U.S. and do that in a tax efficient manner. We’re looking at intercompany transactions and layering transfer pricing concepts onto customs, seeing if we could help with savings in that regard. Depending upon what a client does and their structure, there’s probably a number of ways you can tackle tariffs and get ahead of it. “

Customs valuations are important. “It’s really ensuring that you have an accurate customs valuation, and oftentimes that wasn’t looked at accurately, and there are savings that can result from that,” said Baran. “These are considered an intercompany framework, oftentimes on the businesses that are most impacted by this. Looking at that structure is another way of doing this, not just not just transfer pricing, but location-based analysis. It’s taking what has been decades of international tax knowledge and layering on customs, and that’s providing a framework that’s been tested and works and is valuable.”

Baran has also been keeping a close eye on developments with the overall tax legislation. House Republicans have come under pressure from President Trump to finalize the bill this week, but that won’t be the end of the story. “What’s waiting for them at the Senate tells me that this bill may not look the same because there’s already opposition from the Senate, and the Senate has a lot of rules that they need to follow,” said Baran. “The Senate has concerns, and the Senate instructions in the budget reconciliation concurrent resolution are very different than the House, so you may have a House and a Senate that’s producing two completely different bills. While it’s nice to report and discuss all of the changes that are coming out of the House, I think people should just keep in mind that the Senate is next, and do not assume that they will follow suit. So the ultimate bill that’s eventually produced is going to look a lot different than it does now.”

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Fastest-growing accounting firms spend double on marketing

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The fastest-growing accounting firms spend twice as much on their marketing budget than all other firms, according to a new study.

The Association for Accounting Marketing, in collaboration with the Hinge Research Institute, surveyed over 87 firms — representing 1,037 offices and 66,000 employees — about the drivers behind the marketing performance of the fastest-growing firms. 

High-growth firms invest two-thirds more in employer branding and recruiting, and they budget more for conferences and events, the data found. 

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When it comes to marketing budgets, the fastest-growing firms spent 2.1% of their revenue versus low-growth firms, which spent 1%. Some of that money is invested in marketing teams. High-growth firms have a higher ratio of marketing staff to full-time equivalents (1:49) compared to other firms (1:57). However, the average salary of a high-growth firm team member is 27% less than at the slowest-growing firms. 

“When it comes to marketing, the accounting industry tends to be risk averse and invests less than most other professional services industries,” Liz Harr, managing partner at Hinge, said in a statement. “But the data shows that those that spend more on marketing are getting superior results.”

High-growth firms also spend 66% more on recruiting talent and developing their employer brands — the reputation, culture, employee experiences and marketing that entices potential hires to choose their firm over another — than low-growth firms. 

(Read more: “The 2025 Fastest-Growing Firms”)

Finally, the fastest-growing firms spend 21% more of their marketing budget on conferences and other in-person events than their peers, with high-growth firms allocating 30% of their budget versus low-growth firms allocating 25%. 

“Today’s high-performing accounting firms are taking a somewhat more balanced approach to marketing,” AAM president Laura Metz said in a statement. “Digital and content marketing budgets are on the rise, but perhaps more than anything, high-growth firms are focused on nurturing relationships in person, whether at industry conferences or their own client appreciation events. These gatherings aren’t just line items, they’re growth strategies where the strongest connections, best leads and boldest brand moments take shape.”

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Trump says tax bill ‘close’ as holdouts threaten to sink it

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President Donald Trump said his massive tax package is close to being finalized, having notched a deal over the state and local tax deduction, but the White House has yet to win over a faction of conservatives who want more austere spending cuts.

“We’re doing very well. It’s very close,” Trump told reporters Wednesday.

House Speaker Mike Johnson announced Wednesday that he had an agreement with lawmakers from high-tax states to increase the limit on the SALT deduction to $40,000. 

“The members of the SALT caucus negotiated yesterday in good faith,” Representative Mike Lawler, a New York Republican, told Bloomberg Television. “We settled on something that we believe in, we support.”

However, several hardline Republicans said House GOP leaders aren’t honoring concessions the White House promised them and are threatening to tank the bill. 

But the White House says they never made a deal, instead presenting some of the conservative holdouts with a menu of policy options that the Trump administration can live with, a White House official said. 

The White House made clear to conservatives they would have to persuade their moderate colleagues to sign onto those ideas, the official said, a challenging feat given Republicans’ narrow and fractious House majority.

Trump and Johnson plan to meet with some of the ultraconservative lawmakers at the White House at 3 p.m., a person familiar with the plans said. That meeting will be an opportunity to strike a deal, the Trump official said.

Ultraconservative Representative Andy Harris of Maryland cast the conversations with the White House as a “midnight deal” for deeper cuts in Medicaid and faster elimination of Biden-era clean energy tax breaks.

“I’m sorry, but that’s a pay grade above the speaker,” Harris said. 

Harris said the bill doesn’t reflect that agreement and hardliners will block the package if it comes to a vote. Representative Ralph Norman, an ultraconservative from South Carolina, said the bill “doesn’t have the votes. It’s not even close.”

Freedom Caucus members said they aren’t moving the goal posts by asking for more spending cuts than the budget outline they already voted for. They said they want to rearrange the spending cuts to focus on ending “abuse” in Medicaid and immediately ending green energy tax breaks.

House Republicans leaders are also planning to accelerate new Medicaid work requirements to December 2026 from 2029 in a bid to satisfy ultraconservatives, according to a lawmaker familiar with the discussions. 

How deeply to cut safety-net programs such as food assistance and Medicaid health coverage for the poor and disabled has been a sticking point in reaching agreement on Trump’s tax bill, as Johnson attempts to navigate a narrow and fractious majority.

Harris and Norman spoke shortly after Johnson announced the SALT agreement on CNN. 

Johnson said there is “a chance” the package could come to a vote Wednesday.

But several ultraconservatives cast doubt on that. “There’s a long way to go,” said Representative Chip Roy of Texas, another Republican hardliner.

The speaker can only lose a handful of votes and still pass the bill, which is the centerpiece of Trump’s legislative agenda.

The $40,000 SALT limit would phase out for annual incomes greater than $500,000 for the 10-year length of the bill, Lawler said. The income phaseout threshold would grow 1% a year over a decade, a person familiar with the matter said.

The cap is the same for both individual taxpayers and married couples filing jointly, the person added.

Another person described the income phase-out as gradual, so that taxpayers earning more than $500,000 would not be punished.

Several lawmakers —  New York’s Lawler, Nick LaLota, Andrew Garbarino and Elise Stefanik; New Jersey’s Tom Kean, and Young Kim of California — have threatened to reject any tax package that does not raise the SALT cap sufficiently.

The current write-off is capped at $10,000, a limit imposed in Trump’s first-term tax cut bill. Previously, there was no limit on the SALT deduction and the deduction would again be uncapped if Trump’s first-term tax law is allowed to expire at the end of this year.

Johnson’s plan expands upon the $30,000 cap for individuals and couples included in the initial version of the tax bill released last week. That draft called for phasing down the deduction for those earning $400,000 or more. That plan was quickly rejected by several lawmakers from high-tax districts who called the plan insultingly low.

The acceleration of new Medicaid work requirements could become an issue in the midterm elections — which fall just one month earlier — with Democrats eager to criticize Republicans for restricting health benefits for low-income households. 

House leaders’ initial version of legislation pushed back the new requirements until after the next presidential election.

The earlier date for the Medicaid work requirement could alienate several Republicans from swing districts concerned about cuts to the healthcare program. It is also likely to provoke a backlash in the Senate.

It will be very difficult for states to implement the work requirements in a year and a half, said Matt Salo, a consultant who advises health care companies and formerly worked for the National Association of Medicaid Directors.

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