CSFS Course 5
Actuarial, Legal, Reporting and Disclosure
Setting rates and attachment points, the actuarial basis behind them, and the reporting and disclosure obligations a plan sponsor carries — including the documents that prove the plan exists.
315 practice questions · page 7 of 7, questions 301–315 · answers and explanations included · updated September 2026
15 questions on this page 7 of 7, each with the answer and the reasoning behind it. Read straight through, or quiz yourself on them and the ones you miss stay in rotation until you get them right.
- 301
Why is an investment audit usually not a major consideration for most employee benefit plans?
- •Because investment audits are only required for plans with over 1,000 participants
- •Because investment audits are prohibited under ERISA for welfare plans
- •Because most plans have fairly small amounts of plan assets
- •Because plan investments are automatically audited by the SEC
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Because most plans have fairly small amounts of plan assets
An investment audit is usually not a major consideration because most plans have fairly small amounts of plan assets. However, when assets are audited, the objectives include verifying existence, ownership free of encumbrances, GAAP recording of principal and income, and correct description.
- 302
According to the compliance-related records audit, what specific ERISA compliance items will the accountant check?
- •All ERISA reporting and disclosure requirements and fiduciary standards, including bonding requirements, party-in-interest transactions, and records-retention practices
- •Only the accuracy of Form 5500 financial data and the timeliness of its filing
- •Only the adequacy of stop-loss coverage and reinsurance arrangements
- •Only whether the plan has obtained a favorable IRS determination letter
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All ERISA reporting and disclosure requirements and fiduciary standards, including bonding requirements, party-in-interest transactions, and records-retention practices
The compliance-related records audit covers any and all ERISA reporting and disclosure and fiduciary standards. Specific examples include bonding requirements, party-in-interest transactions, and records-retention practices.
- 303
Under ERISA, what are the two types of audit scope available, and what distinguishes them?
- •Full scope (assets held by regulated entities are audited) and limited scope (such assets are not audited, though other portions like benefits and party-in-interest transactions must still be audited)
- •Full scope applies to plans over 500 participants; limited scope applies to smaller plans
- •Full scope covers all plan operations; limited scope covers only financial statements
- •Full scope requires an on-site visit; limited scope can be done remotely
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Full scope (assets held by regulated entities are audited) and limited scope (such assets are not audited, though other portions like benefits and party-in-interest transactions must still be audited)
The audit may be full scope (assets held by federal/state-regulated entities are audited) or limited scope (such assets are not audited, but other portions of the plan must be audited, including benefits and party-in-interest transactions). The limited scope exception applies to assets held by regulated banks and insurance carriers.
- 304
The auditor has an obligation to provide guidance to the plan sponsor under what specific circumstance?
- •When the financial viability of the plan is in doubt
- •When the plan administrator requests a change in accounting methods
- •When the plan's benefits are richer than industry averages
- •When the plan's investment returns exceed projections
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When the financial viability of the plan is in doubt
The auditor has an obligation to provide guidance to the plan sponsor in the event the financial viability of the plan is in doubt. A risk of some significance exists with healthcare plans that involve fraud, abuse, or self-dealing.
- 305
When planning the audit, the course states it is often helpful that the plan and employer auditor are the same. Why, and what knowledge requirements apply?
- •It aids consistency and information sharing; the plan auditor must be reasonably knowledgeable about the employer, and the employer must be reasonably knowledgeable about ERISA and related matters
- •It is required by DOL; both must be CPA firms with ERISA specialization
- •It reduces audit fees; no specific knowledge requirements apply
- •It speeds the filing process; the employer auditor must also be an enrolled actuary
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It aids consistency and information sharing; the plan auditor must be reasonably knowledgeable about the employer, and the employer must be reasonably knowledgeable about ERISA and related matters
It is often helpful that the plan and employer auditor are the same for efficiency and consistency. The plan audit must be reasonably knowledgeable as to the employer; the employer must be reasonably knowledgeable as to ERISA and related matters. Findings requiring the plan sponsor's attention must be communicated.
- 306
What information must the auditor gather when preparing for the audit, according to the AICPA guide?
- •Bank certified statements, prior financial statements, plan records (benefits/contributions/expenses), plan vendors and parties in interest, plan documents (including stop-loss agreements), minutes of plan committees, and any plan-related reports
- •Only the most recent Form 5500 and the plan's bank statements
- •Only the plan document, SPD, and participant census data
- •Only the trust agreement and the prior year's audit report
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Bank certified statements, prior financial statements, plan records (benefits/contributions/expenses), plan vendors and parties in interest, plan documents (including stop-loss agreements), minutes of plan committees, and any plan-related reports
The auditor's information gathering includes: bank certified statements, prior financial statements, plan records (benefits, contributions, expenses), plan vendors/parties in interest/service organizations, plan documents (plan, booklets, trust agreements, stop-loss agreements), minutes of plan committees, and any plan-related reports.
- 307
According to the AICPA guide, what types of benefit plans are excluded from the guide's coverage?
- •All fully insured welfare plans
- •All plans with fewer than 100 participants
- •All self-funded plans that are not trusteed
- •Workers' compensation plans, though the guide does include fringe and severance benefits
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Workers' compensation plans, though the guide does include fringe and severance benefits
The guide does not apply to government plans where special rules apply. Employee benefit plans within the guide's scope include fringe and severance benefits but exclude workers' compensation.
- 308
The AICPA guide states that the use of a third party's independent auditor or internal auditors to perform certain benefit audit procedures 'may be appropriate.' Why is this significant?
- •It acknowledges that benefit audits may require expertise beyond the independent accountant's capabilities, allowing delegation to specialists with claims expertise
- •It allows the plan administrator to self-certify benefit payments without independent review
- •It eliminates the need for the independent accountant to review any benefit payments
- •It requires all plans to engage a second auditing firm for benefit verification
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It acknowledges that benefit audits may require expertise beyond the independent accountant's capabilities, allowing delegation to specialists with claims expertise
The AICPA guide states this delegation may be appropriate. The course describes this as being of enormous significance regarding benefit audits, as independent accountants normally lack the background for detailed claims adjustment review. Engaging professional claims consultants increases the value of the audit.
- 309
What specific participant data records must the auditor verify as part of the participant data and plan obligations audit?
- •Age, sex, class, date of eligibility, and dependents, as these often have a significant bearing on both contributions and benefits
- •Only enrollment and termination dates
- •Only salary information and job classification
- •Only the participant's name and Social Security number
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Age, sex, class, date of eligibility, and dependents, as these often have a significant bearing on both contributions and benefits
Accurate participant records including age, sex, class, date of eligibility, and dependents often have a significant bearing on both contributions and benefits. The auditor should be very attentive, particularly with Taft-Hartley plans where participant contributions are often defined in a difficult way.
- 310
The auditor must review the claim reserve computation and provide certain minimum information. Which of the following is included in that minimum?
- •Description of groups covered, plan characteristics, census data by active vs. retired status, claim reserve by incurred date, data consistency comments, methodology used, impact of plan amendments, and any intention to terminate
- •Only a comparison of actual claims to projected claims for the plan year
- •Only the claims paid during the year and the number of open claims at year-end
- •Only the total dollar amount of the claim reserve and the actuary's certification
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Description of groups covered, plan characteristics, census data by active vs. retired status, claim reserve by incurred date, data consistency comments, methodology used, impact of plan amendments, and any intention to terminate
The auditor must review the claim reserve computation using SOP 92-6 and provide at minimum: description of groups, plan characteristics, census data, claim reserve by incurred date, data consistency comments, methodology used, impact of plan amendments, and any intention to terminate the plan.
- 311
How do the ERISA and AICPA definitions of party-in-interest transactions differ, and what is the auditor's primary goal?
- •ERISA's definition is narrower than AICPA's; the auditor must file Form 5330 for all such transactions
- •The definitions are identical; the auditor must prevent all party-in-interest transactions
- •The definitions are similar but not identical; the auditor's primary goal is to see that such transactions are either demonstrably exempt or properly disclosed
- •The definitions are unrelated; the auditor focuses only on the AICPA definition
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The definitions are similar but not identical; the auditor's primary goal is to see that such transactions are either demonstrably exempt or properly disclosed
The ERISA definition of party-in-interest transactions and that of the accountants (FAS 57, Related Party Disclosures) are similar but not identical. The primary goal of the auditor is to see that any such transactions are either demonstrably exempt or properly disclosed.
- 312
In a limited-scope audit, which of the following is considered a party in interest to the plan?
- •Only entities that have been specifically designated by DOL
- •Only investment managers who handle more than 10% of plan assets
- •Only the plan sponsor and its employees
- •The independent auditor of the plan's financial statements, as a service provider to the plan
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The independent auditor of the plan's financial statements, as a service provider to the plan
The course identifies the independent auditor of a plan's financial statements as a service provider and thus a party in interest. Other common parties in interest include plan sponsors, TPAs, plan asset custodians, plan counsel, plan trustees, fund managers, and certain owners/shareholders of the plan sponsor.
- 313
The auditor must review 'other auditing considerations' including subsequent events. What specifically must be examined?
- •Any relevant event from the valuation date to the audit completion, including committee minutes, large claims, regulatory examinations, lawsuits, and subsequent financial statements becoming known during that period
- •Only events occurring within 30 days after the plan year end
- •Only events that directly affect the plan's investment portfolio
- •Only events that result in a change in the plan's benefit structure
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Any relevant event from the valuation date to the audit completion, including committee minutes, large claims, regulatory examinations, lawsuits, and subsequent financial statements becoming known during that period
Subsequent events from the valuation date to audit completion must be examined and noted. Examples include committee minutes; events (large claims, regulatory examinations, lawsuits) becoming known during the period; and subsequent financial statements, plan reports, etc.
- 314
The plan representation statement from the plan sponsor to the auditor addresses several key questions. Which of the following is among them?
- •Whether all communications (written or oral) with regulators have been disclosed
- •Whether all participants have received their annual benefit statements
- •Whether the plan's actuary has been certified by the Society of Actuaries
- •Whether the plan's premium rates are competitive with market rates
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Whether all communications (written or oral) with regulators have been disclosed
The plan representation statement addresses: whether the plan sponsor's or plan's financial circumstances are strained, possibility of long-lived asset impairment, use of specialists, recognition of all payables and receivables, disclosure of all communications with regulators, and whether management intends significant plan-related changes.
- 315
Under PTE 84-6, when disclosing insurance commissions, what specific information must be set forth?
- •Only the name of the insurance company and the policy number
- •Only the total dollar amount of commissions received during the plan year
- •Only whether the broker is licensed in the state where the plan is domiciled
- •The nature of any affiliation with the insurance company, the sales commission as a percentage of gross annual premium for the first and renewal years, and a description of any charges, fees, discounts, penalties, or adjustments in connection with the contract
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The nature of any affiliation with the insurance company, the sales commission as a percentage of gross annual premium for the first and renewal years, and a description of any charges, fees, discounts, penalties, or adjustments in connection with the contract
When disclosing commissions under PTE 84-6, the following must be set forth: (1) the nature of any affiliation, limitation, or relationship with the insurance company, (2) the sales commission expressed as a percentage of gross annual premium for the first year and renewal years, and (3) a description of any charges, fees, discounts, penalties, or adjustments related to the contract.
CSFS is the Certified Self-Funding Specialist designation. These are my own practice questions, written while studying for the exam. This site is not affiliated with, endorsed by, or connected to the organisation that administers the CSFS designation, and nothing here is official exam content or a substitute for the course material.
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