The current pandemic has changed the way all businesses operate. Detailed information to keep the industry up to date on the latest issues was presented in the webcast Current Accounting and Auditing Issues in Employee Benefit Plans by Eileen E. Brassil, CFE, CPA, Partner with Legacy Professionals LLP in Chicago, Illinois; Kathleen M. Jackson, CPA, Partner with Novak Francella, LLC in Bala Cynwyd, Pennsylvania; and Scott M. Price, CPA, Managing Partner with the D.C. office of WithumSmith+Brown, PC.
Benefit plan clients with year‐ends after December 2019 will likely have pandemic‐related events that may require an adjustment to the financial statements or additional disclosures. Auditors will have to work with clients to ensure any subsequent events have been accurately identified and reflected in the financial statements as required.
What Are Subsequent Events?
First, as background, the balance sheet date is a date as of which the information in a statement of financial position is stated (e.g., the end of the year). Price explained the types of subsequent events:
- Recognized subsequent events (Type I) provide additional evidence about conditions that existed at the date of the balance sheet (e.g., December 31, 2019).
- Unrecognized subsequent events (Type II) relate to conditions that did not exist at the balance sheet date but arose before the financial statements were issued or available to be issued. (For example, WHO declared a pandemic on March 11, 2020, following the balance sheet date. Soon after the coronavirus pandemic declaration, FFCRA and CARES were enacted, all before the financial statements are available for issuance.) Typically, Price said, a Type II event requires a note disclosure describing the nature of the event and an estimate of the financial effect or a statement that such an estimate cannot be made.
For calendar year‐end 2019 financial statements, any COVID‐19 related subsequent events identified likely are to be unrecognized subsequent events. Some unrecognized subsequent events may be of such a nature that financial statement disclosure is required to keep the statements from being misleading.
Four Sample Subsequent Event Disclosures
More extensive “subsequent events” discussions between auditor and client are required this year due to COVID-19 economic and benefits-related impacts than in typical years. Consider the unique facts and circumstances that affect operations, cash flows and promises to participants. The examples below will give you a better idea of what the events might be and what the disclosure would describe. In addition to discussion with the client, auditors should review year-to-date 2020 financial information.
Market value declines: Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is a least reasonably possible that changes in the values of investment securities will occur in the near term, and that such changes could materially affect the amounts reported in the statements of net assets available for benefits. The current economic environment has increased the degree of uncertainty.
A health plan makes a provision change: The plan waived the seven-day wait period for the weekly income disability benefit for those participants missing work due to COVID-19.
A health plan responds to recently enacted legislation: The Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief and Economic Security (CARES) Act were enacted in March 2020 in response to the coronavirus outbreak, which among other things contain numerous tax, funding and other provisions that affect health care benefits. Subsequent to year end, the plan began providing benefits to cover COVID-19 testing and treatment at 100% (no deductible or co-insurance) and telehealth visits, and reduced co-payment amounts for maintenance prescription drugs, through June 30, 2020. The plan continues to evaluate the impact of the acts on its plan provisions, operations and cash flows
A retirement plan responds to recently enacted legislation: The CARES Act is an approximately $2 trillion emergency economic stimulus package in response to the coronavirus outbreak, which among other things contains numerous tax, emergency funding and other provisions that affect certain retirement plan provisions. In April 2020, the plan authorized changing distribution and loan administrative provisions as allowed by the CARES Act. The plan is currently evaluating [or continues to evaluate] the impact of the CARES Act on its plan provisions, operations and cash flows.
[Upcoming Webcast: Strong Organizations: Your Role in Diversity and Inclusion | June 17, 2020]
For more updates on the current issues for accounting and auditing, listen to the full on-demand webcast here.
Visit the International Foundation Coronavirus (COVID-19) Resources page to find information for plan sponsors, including these upcoming free member webcasts:
- Coronavirus and Conflict in the Workplace—What Can We Learn? | June 16, 2020
- Risk Assessments in Public Sector Pension Plans | June 16, 2020
- Back to the Future: PPA and MPRA Revisited | June 18, 2020
Jenny Lucey, CEBS
Manager, Reference/Research Services at the International Foundation
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