The Approach of New Auditing Standards for Employee Benefit Plans

Employee benefit plan audits subject to ERISA are in for some changes ahead. In July 2019, the American Institute of Certified Public Accountants’ (AICPA) Accounting Standards Board (ASB) issued a final standard for SAS 136: Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA and SAS 137: The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports

These changes have been in the works for years. The AICPA has performed audit quality studies to reveal areas of deficiency in transparency and reporting on financial statements subject to ERISA. While the auditors of your plan have historically performed audits according to the current standards, those standards are leaving room for error. The new standards have been set in motion to remove deficiencies that are ultimately affecting plan sponsors. These changes will affect and benefit plan auditors and plan sponsors alike. So don’t let the names of SAS 136 and 137 fool you… it isn’t only the auditor’s report and responsibilities that are changing. In order for your auditor to perform your plan audit in compliance with the new standards, current plan documents, amendments, transactions, terms, and recordkeeping have to meet new standards required of plan sponsors and management. 

SAS 136: Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA 

All phases of the employee benefit audit plan are facing changes, beginning with engagement acceptance. According to the AICPA, “this will typically result in acknowledgment in the engagement letter of management’s responsibilities for maintaining a current plan instrument, administering the plan, and providing the auditor with a substantially complete draft Form 5500 prior to the dating of the auditor’s report.” The auditor then applies the new standards for risk assessment and response after careful review of the most current plan instrument for the audit period. There are new requirements on the auditor’s communication with those charged with governance and for communicating their reportable findings in writing to management and those charged with governance, as well as changes to the supplementary information in relation to the financial statements as a whole. The key to compliance for plan management and sponsors is to be ready with all required information when it’s time for your 2020 audit.

SAS 137: The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports

SAS 137 aims to enhance transparency relating to the auditor’s responsibilities for other information and documents within the scope of the audit, reducing the diversity across the auditing practice. As with SAS 136, obtaining the additional documentation requires new standards for communicating with those charged with governance, as well as for the written reports on the same. The auditor uses this additional information, both financial and nonfinancial information, to assess the risk of material misstatements and inconsistencies. It is the responsibility of management and plan sponsors to keep accurate and necessary documentation to support accuracy in financial statements and annual reporting.

Both EBP SAS changes are effective for plan periods ending on or after December 15, 2020. There is no early adoption, so the changes won’t affect engagements until 2021, when the audit of your 2020 financial statements takes place. However, early preparation is still key to successful compliance for your future financial statements. A firm plan should be in place now to allow for a smooth transition.

Working with an advisory firm that has extensive experience with employee benefit plan audits is particularly important today, as the federal government is increasingly imposing sanctions on plan sponsors whose plans do not meet compliance requirements. Contact us today to assess what the new auditing standards mean for your plan, or to address any of your Employee Benefit Plan accounting needs.