New Auditing Standard Promises Big Changes in Retirement Plan Audits

By Colin Hannifin, CPA, Business Assurance & Advisory Services Manager

New audit standard aims to provide clarity in the content of Employee Benefit Plan audit reports

In July 2019, the Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA) issued the Statement on Auditing Standards (SAS) No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA (SAS 136 or ERISA SAS).  The new standard will have a significant effect on the content of the auditor’s reports that accompany the audited financial statements of employee benefit plans. The intent is to increase the transparency and understandability of the report for end users of the statements.

Removal of Limited Scope Audits

One of the most visible changes under SAS 136 is the removal of “limited scope” audits.  Limited scope audits referred to ERISA audits in which the auditors could perform limited procedures, relying on the certification of the plan’s custodian or trustee.  Under the new standard, these are now referred to as “ERISA Section 103(a)(3)(C) audits.”  The ERISA SAS includes some new required audit procedures in those areas previously covered by the certification; as a result, the audits will no longer be considered to have a scope limitation.

Enhanced Communications

Additionally, the ERISA SAS seeks to enhance communications between the auditors and management and those charged with governance.  Under the new standard, the auditor should communicate any reportable findings to those charged with governance in writing in a timely manner. Further, the auditor should also communicate to those charged with governance its responsibility with respect to the Form 5500, procedures performed, and the results of those procedures. The auditor also has a responsibility to discuss with management any prohibited transactions with a party-in-interest that has not been properly reported.

Management’s ERISA Audit Responsibilities

The ERISA SAS also clarifies management’s responsibilities in an ERISA audit, and will require management to assume these responsibilities in written representations at the conclusion of the audit.  These responsibilities include:

• Maintaining and providing to the auditors a current plan document, including all amendments;
• Administering the plan and determining that the plan’s transactions presented and disclosed in the financial statements are in conformity with the plan’s provisions;
• Providing to the auditors a completed draft of the Form 5500 prior to the auditor’s report; and
• When electing to have an ERISA Section 103(a)(3)(C) audit, determining whether:
  • An ERISA Section 103(a)(3)(C) audit is permissible;
  • The investment information is prepared and certified by a qualified institution as described in 29 CFR 2520.103-8;
  • The certification meets the requirements in 29 CFR 2520.103-5; and
  • The certified investment information is appropriately measured, presented, and disclosed in accordance with the applicable financial reporting framework.

Change in Format for Employee Benefit Plan Audit Report

Finally, the ERISA SAS will have a significant impact on the form of the auditor’s report that accompanies the financial statements.  Under the new standard, the audit opinion will be at the beginning of the auditor’s report. Furthermore, under the new ERISA Section 103(a)(3)(C) audits, the standard opinion won’t be a disclaimer, as there is not a scope limitation.  Instead, in a clean audit, an unmodified opinion will be issued.

Following the opinion will be a paragraph describing the basis of the opinion.  When applicable, paragraphs regarding going concern and key audit matters (when engaged to communicate these matters) will follow.  The final paragraphs of the report will be a discussion of management’s responsibilities for the financial statements, auditor’s responsibilities for the audit of the financial statements, and other matters describing the nature and intent of the supplemental schedules.  Most of these components are already included in the current audit report, when applicable; however, the form and content will be updated slightly.

Effective Date

Questions on the new employee benefit plan audit standard? Contact your Keiter representative or Email | Call: 804.747.0000. Our ERISA team can help you navigate the changes.

Additional ERISA Resources

• Deficiencies, Quality, and Focus Areas with Employee Benefit Plan Audits
• 2020 Cost of Living Adjustments for Pension Plans