For those organizations with more than 120 eligible employees, an audit of your employee benefit plan is required each year. Starting this year, these audits will operate differently.
In an effort to strengthen the quality of the employee benefit plan audits, the AICPA has issued new guidance (SAS 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA) which will affect plan periods ending on or after December 15, 2021, with audit work performed in 2022.
This new standard is designed to provide additional transparency through specific performance and reporting requirements and changes to the auditor’s report structure. Audits performed under ERISA section 103(a)(3)(C) will no longer be referred to as “limited scope” audits and will instead be named “ERISA Section 103(a)(3)(C)” audits.
To enhance the quality of employee benefit plan audits, the new standard specifically addresses:
- Engagement acceptance
- Audit risk assessment and response
- Communications of findings to those charged with plan governance
- The auditor’s responsibilities relating to the ERISA-required supplemental schedules and Form 5500
- The form and content of the related auditor’s report
Changes to the report format
The most visible shift for the plan will be changes made to the auditor’s report issued at the end of the plan audit. The auditor’s report will now be made up of the following sections:
- Scope and Nature of the Employee Retirement Income Security Act (ERISA) Section 103(a)(3)(C) Audit
- Basis for Opinion
- Responsibilities of Management for the Financial Statements
- Auditor’s Responsibilities for the Audit of the Financial Statements
- Supplemental Schedules Required by ERISA
The Scope and Nature of the ERISA 103(a)(3)(C) Section Audit paragraphs include an acknowledgement that management has elected to have an audit performed in accordance with section 103(a)(3)(C) of ERISA.
The Opinion section must include the following two components as part of the auditor’s findings of the ERISA plan financial statements:
- The amounts and disclosures that are not covered by the certification are presented in accordance with the applicable financial reporting framework, and
- The investment information related to the certified investment information agrees to or is derived from the certified investment information provided by a qualified institution.
Additionally, a Basis for Opinion section is required to follow the opinion section. This must include a statement that the auditor is independent of the entity and meets the ethical responsibilities in accordance with the relevant ethical requirements relating to the audit.
The Responsibilities of Management for the Financial Statements section includes management’s responsibility for the preparation and fair presentation in accordance with US GAAP and a statement that the election of the ERISA section 103(a)(3)(C) audit does not affect management’s responsibility for the financial statements. Additionally, the section will include that management is required to evaluate whether there are conditions or events that raise substantial doubt about the plan’s ability to continue as a going concern. Lastly, the section includes that management is responsible for maintaining a current plan instrument, including plan amendments; administering the plan; and determining that the plan’s transactions that are presented and disclosed in the financial statements are in conformity with the plan’s provisions.
The Auditor’s Responsibilities for the Audit of the Financial Statements section includes a statement that the audit did not extend to the certified investment information, except for obtaining and reading the certification, comparing the certified investment information with the related information presented and disclosed in the financial statements, and reading the disclosures relating to the certified investment information to assess whether they are in accordance with the presentation and disclosure requirements of US GAAP.
The plan sponsor will be required to acknowledge responsibility for the plan's administration in the audit engagement letter. Communications with management and those charged with governance will increase to ensure more comprehensive and transparent reporting. Expanded descriptions of management’s responsibilities over plan amendments and plan administration will be obtained during the audit planning phase. Additionally, management will be responsible for determining that the plan’s presented transactions are properly disclosed in the financial statements and in conformity with the plan’s provisions.
Auditor’s responsibilities will be expanded to include professional judgment and professional skepticism in their communications with those charged with governance. As mentioned, the two-pronged Opinion requires auditors to state whether the information not covered in the certification is presented fairly in all material aspects and whether the certified investment information in the financial statements agrees with or is derived from the certification.
Senior Audit Manager
Through consistent communication and trusted relationships, Tim navigates his clients through their biggest challenges. Tim has over 10 years of experience in audit and public accounting. He holds Bachelor's and Master's of Science degrees in Accountancy from Northern Illinois University. Tim leads our team in Employee Benefit Plan Audits. When he is not at the office, you might find Tim spending time with his family on the golf course or at a Jimmy Buffet concert.