Employee benefit plan sponsors will want to take note. The AICPA Auditing Standards Board (ASB) has issued Statement on Auditing Standards (SAS), which addresses certain new performance and reporting requirements for audits of employee benefit plans (EBP) subject to ERISA. The new statement, SAS No. 136, also makes significant changes to the form and content of the auditor’s report.
This alert focuses on the new requirements for employee benefit plan sponsors of 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).
SAS No. 136 overview
The EBP SAS is intended to improve audit transparency while enhancing the auditor reporting model for audits of ERISA plan financial statements by taking the specialized nature of plan operations into consideration.
Effective date
The original effective date of the EBP SAS was for periods ending on or after Dec. 15, 2020. However, the ASB voted to delay the effective date, and the new effective date is for plan financial statements for periods ending on or after Dec. 15, 2021.
Audit firms can elect to early adopt the EBP SAS as of the original effective date. Plante Moran has elected to implement the EBP SAS as of the new effective date — that is, for periods ending on or after Dec. 15, 2021.
Changes to audit report and engagement letter
SAS 136 clarifies plan management and auditor responsibilities; some of which are now included in the auditor’s report and engagement letter.
Management’s responsibility to maintain a plan instrument, including all plan amendments, to administer the plan and maintain sufficient records for plan transactions as well as management’s responsibility for the financial statements will be included in the audit engagement letter.
The goal of these changes is to clarify management’s role and responsibilities throughout the audit process.
What impact can plan sponsors expect?
Plan sponsors and management of benefit plans subject to ERISA can expect changes related to management responsibilities, the audit report, communications, and inquiries and procedures. Let’s take a look.
Management responsibilities under SAS No. 136
As part of the ERISA section 103(a)(3)(C) audit, plan sponsors will have the additional responsibilities to:
- Assess whether the entity issuing the certification is a qualified institution when electing an ERISA section 103(a)(3)(C) audit.
- Ensure the certification meets ERISA requirements and gain an understanding as to which investments and disclosures are certified.
- Acknowledge, in writing, that all the conditions are met and that an ERISA section 103(a)(3)(C) audit is permissible.
Plan sponsors should maintain documentation of this assessment. Additionally, the certification should be in good form—that is, signed by an authorized representative with certification of both accuracy and completeness.
Audit report changes under SAS No. 136
Plan sponsors will notice that the audit report will look significantly different once the EBP SAS has been implemented. One of the objectives of SAS 136 is to provide readers with a better understanding of the scope of the audit and to make clear the responsibilities of the plan sponsor (as mentioned above) and the auditor.
The EBP SAS will allow plan sponsors to elect to have an ERISA section 103(a)(3)(C) audit, which will no longer be referred to as a “limited scope audit.”
The audit opinion of an ERISA section 103(a)(3)(C) audit will include information on the procedures performed on both certified and noncertified information as well as a new basis for opinion section.
The audit report is intended to be more transparent as to plan sponsor and auditor responsibilities, regardless of whether an ERISA section 103(a)(3)(C) audit or a non-ERISA section 103(a)(3)(C), formerly referred to as “full scope,” audit is performed.
Communications under SAS No. 136
The EBP SAS requires the auditor to communicate, in writing, reportable findings, including identified or suspected noncompliance, to plan management and those charged with governance.
Plan sponsors should be aware that reportable findings include one or more of the following:
- An identified instance of noncompliance or suspected noncompliance with laws or regulations.
- A finding arising from the audit that, in the auditor’s professional judgment, is significant and relevant to those charged with governance, regarding their responsibility to oversee the financial reporting process.
- An indication of deficiencies in internal controls identified during the audit that haven’t been communicated to management by other parties and that, in the auditor’s professional judgment, are of sufficient importance to merit management’s attention.
Inquiries and procedures under SAS No. 136
In addition to the inquiries and procedures surrounding the evaluation of the certification statement, plan sponsors and management should also expect:
- Written representations to be requested from the auditor, such as management’s responsibilities for maintaining a current plan instrument and administering the plan.
- To provide auditors with a substantially completed draft Form 5500, prior to dating the audit report, including forms and schedules that could have a material effect on the information in the financial statements.
SAS 136 plan sponsor impacts in summary
The adoption of SAS 136 will require advanced planning and coordination among the plan sponsor, the auditor, and the Form 5500 preparer throughout the audit process. If plan sponsors elect an ERISA section 103(a)(3)(C) audit, they will need to ensure coordination with the qualified institution.
Additionally, it will be important for plan sponsors to be aware of and provide the additional documentation the auditor will request to perform the ERISA section 103(a)(3)(C) audit.
Plan sponsors can see the full EBP SAS for more information as well as tools provided by the AICPA Employee Benefit Plan Audit Quality Center, designed to assist plan management in assessing whether the conditions for electing an ERISA Section 103(a)(3)(C) audit have been met.
If you have any questions about SAS 136 or electing an ERISA Section 103(a)(3)(C) audit, feel free to reach out — we’re happy to help.
