Nearly two years ago, the AICPA issued Statement on Auditing Standards (SAS) No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA. The AICPA issued the SAS to improve the quality and transparency of the audit process for multiemployer, single employer, and multiple employer plans subject to regulations under the Employee Retirement Income Security Act of 1974 (ERISA). The SAS will affect all phases of the audit process, from preparation and performance to risk assessment to communication with management and final reporting. In addition to prescribing new procedures and changing the form and content of the auditor’s report, SAS 136 effectively eliminates what’s currently known as a “limited scope audit.”
While the SAS was originally effective for audit periods ending after December 15, 2020, it was delayed in April 2020 for one year due to COVID-19. The standards are now effective for periods ending after December 15, 2021. SAS 136 is now swiftly approaching, namely for ERISA plans with a calendar year-ends. For plan year-ends of December 31, 2021, the standards become effective for your 2021 ERISA plan audit performed in 2022. To stay ahead of unexpected challenges that may occur once the limited scope audit is replaced, plan sponsors need to understand the new requirements and start preparing for the change now.
What’s replacing the limited scope audit, and why?
Under the new standard, limited scope audits are replaced with ERISA Section 103(a)(3)(c) audits. Under current regulations, plan sponsors can make an election for a limited scope audit, which essentially tells their auditors to limit the scope by excluding investment information prepared and certified by a trustee or custodian from their auditing procedures. Historically, auditors would issue a report that contained a disclaimer of opinion that states they could not obtain sufficient appropriate evidence to form an audit opinion on whether the financial statements are presented fairly, in all material respects.
Under SAS 136, making this election is no longer considered a scope limitation. The auditor’s report for an ERISA Section 103(a)(3)(C) audit will provide a two-part opinion rather than a disclaimer of opinion. The report will state whether the information not covered by the certification is presented fairly and whether the investment information in the financial statements related to the certified information agrees with or is derived from the certification information provided.
What changes for plan sponsors?
If you elect to have an ERISA Section 103(a)(3)(C) audit, you will need to assess whether the entity preparing and certifying the investment information and issuing the certification is considered qualified under DOL rules and regulations. You are also responsible for ensuring the certification meets ERISA requirements and assessing which investments and disclosures are certified.
Your auditors will evaluate your assessment of the entity preparing and certifying the investment information and identify which investment information is certified. They will compare that information to the related disclosures and information presented in the financial statements and supplementary schedules. Your auditors will also read the disclosures relating to the certified investment information to determine whether they are in accordance with U.S. generally accepted accounting principles (GAAP). If your auditors determine further information is needed, they will discuss the appropriate course of action and additional procedures with management.
SAS 136 requires auditors to obtain certain written representations from plan sponsors as part of the engagement acceptance phase of an ERISA plan audit. Your auditors will ask you to certify that the plan instrument given to them is the most current document (including amendments) for the audit period. They will also ask you to acknowledge your responsibility for administering the plan and determining that the plan’s transactions are presented and disclosed in the financial statements according to the plan’s provisions.
If the plan sponsor elects to have an ERISA Section 103(a)(3)(C) audit, your auditors will be required to obtain additional written representations. Your auditors will ask you to acknowledge that your election of the ERISA Section 103(a)(3)(C) audit does not affect your responsibility for the financial statements, nor for making specific determinations related to the audit or the certification of investment information.
For plan sponsors, working with ARB’s Employee Benefit Plan Services Team means they are supported at every stage of need, from plan creation, maintenance, and annual compliance to implementing new standards and regulations. ARB is active in your industry, and we are members of the AICPA Employee Benefit Plan Audit Quality Center, the Maine Employee Benefits Council, and the ESOP Association’s New England Chapter.
I help employee benefits clients by customizing services to meet their plan’s specific needs, prioritizing providing plan sponsors with efficient, cost-effective plan audit management and quality advisory services. Contact me today to discuss your plan’s accounting, compliance, and consulting needs.
by Benjamin Lord, CPA, CCIFP
Ben Lord is a Director at ARB and has been with the firm since 2013. He specializes in audit and consulting services for employee benefit plans and financial accounting and consulting services for construction, real estate development, manufacturing, and professional services firms.