Statement on Auditing Standards for employee benefit plans
The AICPA Auditing Standards Board (ASB) issued a Statement on Auditing Standards (SAS) No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to Employee Retirement Income Security Act of 1974 (ERISA). The employee benefit plan (EBP) SAS addresses certain new performance and reporting requirements of ERISA benefit plans as well as significant changes to the form and content of the auditor’s report on such financial statements. This update will focus on the impact to plan sponsors regarding the clarifications of the EBP SAS.
In July 2019, the Auditing Standards Board (ASB) issued a Statement on Auditing Standards (SAS) No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to Employee Retirement Income Security Act of 1974 (ERISA). The EBP SAS is intended to improve audit transparency while focusing on enhancing the auditor reporting model for audits of ERISA-plan financial statements by taking into consideration the specialized nature of plan operations.
Although the EBP SAS generally affects the auditor responsibilities, plan sponsors and management of benefit plans subject to ERISA, can expect the following changes:
- While the EBP SAS will still allow plan sponsors to elect to have an ERISA Section 103(a)(3)(c) audit, formally referred to as a limited scope audit, plan sponsors will need to acknowledge their responsibility for determining whether such an audit is permissible, including whether the investment information is prepared and certified by a qualified institution, and whether the certification complies with ERISA regulations under an ERISA Section 103(a)(3)(c) audit.
- Those responsible for plan governance will benefit from increased communication from the auditor, as the EBP SAS requires the auditor to communicate reportable findings, including identified or suspected noncompliance with laws or regulations.
- Plan sponsors will need to provide auditors with a substantially completed draft Form 5500, including forms and schedules that could have a material effect on the information in the financial statements prior to issuance of the plan’s financial statements. This will allow the auditor to identify any material inconsistencies or misstatements of fact prior to dating the auditor’s report. This will require advanced planning and coordination between the plan sponsor, the auditor, and the Form 5500 preparer.
- Plan sponsors and management will see an increase in the written representations requested by the auditor, such as management’s responsibilities for maintaining a current plan instrument and administering the plan.
The EBP SAS also includes requirements for auditors regarding:
- Engagement acceptance
- Audit risk assessment and response
- Auditor communication with those charged with governance
- Procedures for an ERISA Section 103(a)(3)(c) audit, primarily related to compliance with plan provisions
- Considerations relating to Form 5500
Plan sponsors can refer to the full EBP SAS for more information.
Effective date and transition
Originally, the effective date of the EBP SAS was for periods ending on or after December 15, 2020. In May of 2020, the AICPA issued SAS 141, Amendment to the Effective Dates of SAS Nos. 134-140, which amends the effective date of the EBP SAS to periods ending on or after December 15, 2021, in order to provide more time for firms to implement these standards in light of the effect of the coronavirus pandemic. SAS 141 permits early implementation; however, SAS 134-140 are interrelated, the Auditing Standards Board recommends that all the standards be implemented concurrently.