Benefit plans with a year ending on or after December 15, 2021, will need to follow a new auditing standard. Statement on Auditing Standard No. 136, Forming an Opinion and Reporting on Financial Statements of Employee benefit Plans Subject to ERISA, provides clarity over management and auditor responsibilities and additional transparency in reporting.
One of the more significant changes in the standard is the introduction of the ERISA Section 103(a)(c)(3) audit (previously referred to as a limited scope audit). Unlike a limited scope audit, which resulted in a disclaimer of opinion related to certified investment information, an ERISA Section 103(a)(c)(3) audit will provide a two-pronged opinion covering the audit and whether the certified investment information contained in the financial statements agrees to the certification. In addition, all ERISA audit reports [even if management does not elect an ERISA Section 103(a)(c)(3) audit] will have expanded wording relating to both auditor responsibilities and management responsibilities.
Additionally, auditors are now required to report, in writing, any “reportable findings” at the conclusion of the audit. Reportable findings can include identified instances of noncompliance or other areas the auditor determines significant or relevant to those charged with governance. Previously, auditors could have communicated less significant items verbally. As a result, management can expect to receive more written comments for their 2021 plan audit.
Updated Requirements for Plan Management
Expanded responsibilities for plan sponsors include:
- Determining whether the plan audit qualifies for an ERISA Section 103(a)(c)(3) audit:
- Are requirements met?
- Is there a proper certification of investments?
- Acknowledging management’s responsibility to:
- Maintain a current plan instrument, including amendments
- Administer the plan in accordance with plan provisions
- Maintain sufficient records to determine participant benefits
- Provide the auditor with a substantially completed draft Form 5500 prior to completing the audit
Updated Requirements for Plan Auditors
Expanded responsibilities for plan auditors include:
- Performing engagement acceptance procedures—obtaining management’s acknowledgements as noted above and inquiring how management determined the plan qualified for an ERISA Section 103(a)(c)(3) audit
- Evaluating management’s assessment of investment certification qualifications
- Obtaining the most recent plan documents and design procedures necessary to assess whether the plan is following plan provisions
- Reading the draft Form 5500 to identify any material inconsistencies to the audited ERISA plan financial statements and obtain revisions as necessary
- Evaluating and communicating reportable findings in writing, with a description of the potential impact to the plan for each finding
Plan sponsors can find additional tools provided by the AICPA Employee Benefit Plan Audit Quality Center for more information.
See Part 2 of this series: How to implement the new standard.