In July 2019, the AICPA issued the Statement on Auditing Standard (SAS) 136 – Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans subject to ERISA standards. The primary goal of the standard is to improve audit quality by making the auditor’s report clearer and easier to understand for the users of the financial statements. Implementation of such guidance is expected to be effective for all plan audits subject to ERISA for periods ending on or after December 15, 2021, with early implementation permitted.
One of the most significant changes from the new standard is the change in definition of “limited-scope audits”. Under the new standard, former limited-scope EBP audits will be referred to as ERISA Section 103(a)(3)(c) audits on the audit report. These audits grant management the option to exclude certain investment information a qualified institution holds and certifies. The auditor will no longer issue a report that disclaims an opinion because certified investment information was not audited. The report will describe the scope and nature of the ERISA Section 103(a)(3)(c) audit and will be followed with the basis for opinion and opinion paragraphs. With the removal of the disclaimer of an opinion, the audit opinion is now expected to be divided into two parts on the independent auditor’s report. The first part of the opinion will address the financial statement amounts and disclosures that are not covered by the investment certification and will provide a conclusion that these amounts and disclosures are in conformity with the applicable framework. The second part of the opinion separately identifies the investment information covered by the certification and whether it agrees with information provided by the qualified institution.
The Plan Sponsor is required to take additional responsibility of their plan (if not already implemented) under an ERISA section 103(a)(3)(C) audit. Management is required to make an assessment and implement the following:
- Maintaining a current plan instrument
- Administering the plan and determining plan transactions are presented in accordance with plan provisions
- Whether such an audit is permissible
- If the investment information is prepared and certified by a qualified institution
- If the investment certification meets necessary requirements, is measured appropriately, and is accurately disclosed in accordance with the applicable financial reporting framework.
The auditor is required to refine the audit acceptance process on an annual basis to evaluate management’s acknowledgement and acceptance of responsibilities. Another change requires the auditor to obtain and review a draft of a substantially completed Form 5500 prior to the issuance of the financial statements. This is done so the auditor can identify any differences between the financials and 5500.
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