New standard strengthens oversight and promotes transparency.
A new auditing standard will affect December 31, 2021 employee benefit plan audits. In July 2019, the American Institute of Certified Public Accountants (AICPA) issued a new audit standard for employee benefit plans, Statement on Auditing Standards No. 136 (SAS 136), Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA (the Employee Retirement Income Security Act). SAS 136 was originally effective for periods ending on or after December 15, 2020; however, due to the COVID-19 pandemic, the effective date was delayed to audits ending on or after December 15, 2021.
Under SAS 136, Department of Labor (DOL) Limited Scope audits are now referred to as ERISA Section 103(a)(3)(C) audits. The AICPA updated the audit standard to address quality issues found by the DOL’s Employee Benefits Security Administration (EBSA) after it examined independent auditors’ work on employee benefit plans. The changes include a broader scope and new audit reports that increase transparency by expanding the plan sponsors’ and the auditors’ responsibilities, including new performance requirements. Plan sponsors will be responsible for providing increased documentation to cover the enhanced scope of the audit.
Key Changes for the Auditor
SAS 136 expands the auditors’ procedures relating to engagement acceptance, management representations, risk assessment, and communicating audit findings. These changes will result in additional inquiries, acknowledgments, and requests of plan management.
Key Changes for the Plan Sponsor
SAS 136 also expands plan management’s responsibilities, including assessing and determining whether an ERISA Section 103(a)(3)(C) audit is permissible. As part of the auditors’ engagement acceptance procedures, the auditors must review the plan management’s assessment.
Additional management responsibilities include:
Maintaining a current plan document.
Providing the auditor with a substantially complete Form 5500 before issuance of the financial statements.
Administering the plan and determining that plan transactions are presented and disclosed in the financial statements in accordance with the plan’s provisions.
For more information, consult the AICPA Employee Benefit Plan Audit Quality Center’s tool, Conditions for plan management to elect on ERISA Section 103(a)(3)(C) audit, which may help assist plan sponsors with their assessments and election of an ERISA Section 103(a)(3)(C) audit. We also encourage you to review the AICPA Employee Benefit Plan Audit Quality Center’s Plan Advisory, New audit standard for employee benefit plans: An overview for plan management.
Please reach out to your BPM engagement team with any questions about how SAS 136 will change the communications, deliverables, and responsibilities related to ERISA plan audits.