Employee benefit plans with years ending December 31, 2021 will be subject to new auditing standards — a year delay of the American Institute of CPA’s original implementation date due to the pandemic.
These new standards will most likely apply to any audit of plans with more than 120 eligible participants covered by the Employee Retirement Income Security Act of 1974.
The updated standards were prompted in part by a 2015 U.S. Department of Labor report that found that 39 percent of employee benefit plan audits contained “major deficiencies with respect to one or more Generally Accepted Auditing Standards (GAAS) requirements which would lead to rejection of a Form 5500 filing, putting $653 billion and 22.5 million plan participants and beneficiaries at risk.”
Since then, the AICPA has been working on solutions to improve the quality of employee benefit audits and enhance the value of audit reports for users.
The resulting final standard, Statement on Auditing Standards (SAS) Number 136, “Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA,” includes several significant changes.
According to the AICPA, the standard provides new requirements in all audit phases, including engagement acceptance, risk assessment and response, communication with those charged with governance, performance procedures, and reporting.
Among the changes are new rules related to limited-scope audits, now referred to as ERISA section 103(a)(3)(c) audits, and the reports issued by auditors in this type of engagement.
The standards also require new management representations regarding 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.
In addition, plan administrators who choose this type of audit must now acknowledge their responsibilities in seeking and reviewing investment certifications and confirming that the certifying institution is qualified. Administrators must also notify management that the certification is proper.
The new standards also clarify auditor expectations, including procedures to be used when performing this type of audit—specifically on certified investment information—and describe a new type of report that provides greater transparency for users.
After the audit is complete, auditors will use a new reporting model with longer, more detailed financial statement opinions that clearly state the scope and nature of the engagement, indicating what the auditors did and did not include in their analysis.
In addition, rather than including a disclaimer of opinion for certified investment information, auditors will offer an opinion about the fair presentation of information not covered by the certification and address the relationship between certified investment information and financial statements.
Findings will also be more detailed, which will help plan managers correct them, if needed.
How Can You Prepare?
While management may still opt for an ERISA section 103(a)(3)(c) audit, implementing these new standards will require a highly qualified and experienced auditing team that can navigate the steps and procedures. Good communication among plan sponsors, auditors, and administrators will be imperative.
There is still time to ensure your benefit plan audit will incorporate the new standards as seamlessly as possible — if you take the right steps now.
Dembo Jones’ employee benefits auditing team has specialized knowledge and expertise to certify your plan’s compliance with complex standards and regulatory changes. We can help protect the assets and financial integrity of your plan, design internal controls, and file a complete and accurate Form 5500 annual return/report.
Contact us today and get a head start on the process.