Corporations can create plans to compensate their employees after retirement, which may be differentiated into qualified and non-qualified deferred compensation plans. The Employee Retirement Income Security Act (ERISA) in the United States mandates all employers to reimburse their long-serving employees after they are officially discharged from their duties and responsibilities because of old age. Therefore, the qualified compensation procedure is law-protected and meets all the requirements of ERISA, while non-qualified compensation strategies do not adhere to ERISA’s guidelines ( Horneff, Maurer & Mitchell, 2018) . In the qualified retirement compensation arrangement, the employer deducts a pre-agreed amount from the employee’s pre-tax salary, which matures when the worker retires and is eligible to withdraw the saved funds. In contrast, the employer deducts after-tax salaries of employees who use the non-qualified deferred compensation deal, and the strategy is not protected by the law.
I would choose the qualified retirement compensation plan for its several benefits over the non-qualified proposal. Firstly, the qualified retirement method is protected by the law, in that in the case that an organization becomes bankrupt creditors cannot access employees’ saved funds to repay debts. Additionally, individuals who use the qualified platform are subjected to extensive tests to ensure the beneficiary is fully protected from harsh situations, such as the abrupt dissolution of an organization ( Arens, Elder, Beasley, & Hogan, 2019). In contrast, the non-qualified deferred compensation plan is extremely risky in that when a company is dissolved, creditors are allowed to access employees’ saved dollars as repayments for debts. Further, employers whose employees use the system highlighted above are allowed by the law to withhold saved money when they fire a worker, which may frustrate the beneficiary if they are discharged by the company from performing their duties because of malice. Therefore, I would choose the qualified retirement compensation program over the non-qualified deferred compensation strategy for its significant advantages compared to the latter.
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Test Methods
Positive confirmation is an auditing technique that is used requiring customers to respond whether the statements are correct or incorrect. While negative confirmation is an auditing technique requiring customers to respond only if there is a discrepancy in the statements. Positive confirmation is advantageous in that there is physical evidence in cases of disputes. The disadvantage is that it is time consuming. Negative confirmation is advantageous in that it is time saving since clients responses are required only if there is a discrepancy in the statements. The disadvantage is that there is no evidence left behind in cases where there are no discrepancies. Customer responses are only acceptable in email form as this leaves physical evidence. However, oral communication for example through phone calls can be used to remind customers to respond to the email.
Substantive testing is required to verify whether the information in the statements is correct or not. An auditor should test accounts balances when there are discrepancies between their financial statements and those that the company avails to them for inspection.
References
Arens, A. A., Elder, R. J., Beasley, M. S., & Hogan, C. E. (2019). Auditing and assurance services .
Horneff, V., Maurer, R., & Mitchell, O. S. (2018). How persistent low expected returns alter optimal life cycle savings, investments, and retirement behavior. National Bureau of Economic Research , 1-19. https://www.nber.org/system/files/working_papers/w24311/w24311.pdf
