Upcoming EBP Audit Changes

The time has come for implementation of the American Institute of Certified Public Accountants (AICPA) issued Statement on Auditing Standards No. 136 (SAS 136) Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA. This SAS was originally effective for audits of ERISA plan financial statements for periods ending on or after December 15, 2020; however, as a result of COVID-19, the effective date was extended to plan periods ending on or after December 15, 2021. The purpose behind the standard is to help strengthen audit quality, to assist in enhancing transparency in financial reporting, and to encourage simplification of employee benefit plan audits.

As you begin to prepare for your annual employee benefit plan audit in your role as a plan sponsor, you should keep in mind some key points shared below as you work toward implementation of SAS 136.

The audit report will look different than in the past. One of the key changes under SAS 136 is that “limited-scope audits” are now referred to as ERISA Section 103(a)(3)(c) audits. Under the previous audit standards, when performing a limited-scope audit, an auditor was required to issue a disclaimer of opinion because the certified investment information was not audited. Under the new standard, this is no longer considered a scope limitation but rather it permits the auditor to issue a form of an unmodified opinion. The auditor’s opinion under the new standard will instead detail the limitations on procedures performed on the certified investments and will express an opinion on the amounts and disclosures included in the financial statements other than those agreed to or derived from the certified investment information. One unchanged element between the old standard and the new standard is the requirement that investment information be certified as both complete and accurate by a qualified institution (bank, insurance company, etc.).

Plan sponsors and plan management should expect to provide additional information to auditors which will require additional planning and preparation on their part. Under SAS 136, Plan Sponsors and Plan Management:

• Will have heightened responsibility to document their maintained updated documents governing their employee benefit plan.
• Will be required to acknowledge their responsibility to maintain records of activities and participants in their employee benefit plan including sufficient records determining benefits due or that may become due.
• Must confirm transactions reported and disclosed in the financial statements follow plan provisions.
• Will be required to provide auditors with a substantially complete draft of their form 5500 including all required schedules prior to the auditor issuing the final audit report.
• Will be required to determine that the audit is permissible which includes determining whether the certifying institution is qualified, the certification meets the applicable requirements, and that the certified information is properly presented in the financial statements.

The acknowledgements and determinations that plan sponsors and administrators have completed these responsibilities will be detailed in the engagement letter.

Even though the largest impact of implementation of SAS 136 will fall to plan auditors, it is important that plan sponsors be aware of the new responsibilities listed above so they can be adequately prepared.