ESOPs are unique when compared with other retirement plans because the plan’s trust is primarily designed to hold stock of the employer. This is in contrast with rules applicable to other types of retirement plans that limit the amount of employer stock that can be held in the plan.
A few of the key areas of emphasis in the audit of an ESOP include:
Valuation of employer stock. Particularly when a company sponsoring an ESOP is not publicly traded, the valuation of employer stock is based on estimates. A valuation is performed by a third party expert. This valuation must be reviewed and key inputs and assumptions must be tested to ensure that the valuation is reasonable.
Employer stock transactions. This unique scenario differs from the purchasing of investments from a menu offering. While other investments are allowed, typical ESOPs transact in large numbers of employer stock shares.
At Pension Assurance LLP, we design our audits to specifically address these and other key audit risk areas specific to ESOPs. When issues are noted, we take a proactive approach, focusing on how to resolve any past errors and make changes to the plan or its operations to prevent the issue in the future. While we must maintain objectivity and independence, we don’t believe that requires us to be adversarial. We take great pride in helping clients positively address issues when they arise.