Definition
A defined contribution plan presents a statement of net assets available for benefits and a statement of changes in net assets available for benefits under ASC 962. Defined benefit plans follow ASC 960. Plan investments are reported at fair value. The statement also includes contributions receivable, notes receivable from participants, accrued income, and liabilities such as excess contributions refundable and benefits payable. The remaining amount is net assets available for benefits.
Why it matters in an audit or review
This statement is the focus of the plan audit. Auditors test existence and fair value of investments, usually with certifications from a qualified custodian under a limited-scope audit, completeness of receivables, and classification of participant loans. The statement must agree to the Form 5500 financial schedules and to the trust or recordkeeper reports.
Example
Illustrative: investments at fair value are $10,000,000, employer contributions receivable $150,000, notes receivable from participants $400,000, and excess contributions refundable $50,000. Net assets available for benefits are $10,500,000 ($10,550,000 of assets less $50,000).
Common mistakes
- Reporting investments at cost.
- Leaving off employer contributions earned before year end.
Sources
- FASB ASC 962, Plan Accounting, Defined Contribution Pension Plans
- FASB ASC 960, Plan Accounting, Defined Benefit Pension Plans
- AICPA, AU-C Section 703
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error