Following a shocking 39 percent audit deficiency rate in an audit quality study conducted by the Department of Labor (DOL) in May 2015, the DOL requested the ASB take a fresh look at the auditor reporting model for ERISA plan audits to provide better insight to the public regarding the scope of the responsibilities of Plan management and the auditors on limited scope audits, as permitted by the DOL’s Rules and Regulations for Reporting and Disclosure under ERISA. Key players in the DOL had expressed views that the disclaimed opinion, and some auditors’ misinterpretation of procedures to be performed in a limited-scope audit, were partially to blame for the continued 39% deficiency rate in the DOL’s audit quality study.
The change is finally here! Last month, the AICPA Auditing Standards Board (ASB) issued two new Statements of Auditing Standards (SASs): No. 136, “Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA,” and No. 137, “The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports.”
SAS 136 addresses the auditor’s responsibility to form an opinion on employee benefit plans (EBPs) and report on the audit of financial statements of EBPs subject to the Employee Retirement Income Security Act of 1974 (ERISA), and the form and content of the auditor’s report issued as a result of an audit of ERISA plan financial statements.
SAS 136 includes new requirements for:
• engagement acceptance
• audit risk assessment and response
• communications with those charged with governance
• procedures for an ERISA section 103(a)(3)(C) audit
• considerations relating to the Form 5500
SAS 136 also contains a new report format for ERISA audits. Under the new standard, reports on audits of employee benefit plans will provide users with enhanced transparency about the nature of the audit of a plan as well as the responsibilities of both the plan and the plan’s auditors.
Under professional standards, the auditors are required to perform audit procedures on other information included in an entity’s annual report (i.e., Form 5500) to ensure that there is no material inconsistency between the audited Plan’s financial statements and the other information. The determination as to which documents constitute the entity’s annual report is often difficult when the entity does not have a regulatory requirement to prepare an annual report or a framework that dictates what that annual report should contain.
SAS No. 137 includes a requirement for the auditors, through discussion with Plan management, to determine and obtain Plan management’s written acknowledgment regarding which document or documents comprise the annual report. This is intended to ensure that both the auditors and Plan management understand the documents that are considered the entity’s annual report and therefore are subject to the auditor’s procedures. SAS 137 clarifies the auditors’ responsibility to consider when a material inconsistency exists between the audited Plan’s financial statements and the other information.
Both SAS 136 and 137 become effective for audits of financial statements for periods ending on or after December 15, 2020. Early implementation is NOT permitted.
- FAQs – Learning About the New Employee Benefit Plan Auditing Standard
- AICPA New Auditing Standards for Employee Benefit Plans, At a Glance
- Journal of Accountancy – Employee Benefit Plan Rules to Change
Michelle Brumfield,CPA serves as the Employee Benefit Plan Audit and Compliance Director. She has the unique experience required for managing numerous employee benefit plan audits and consulting with both publicly held and privately owned employee benefit plan sponsors. Michelle has over 22 years of experience in accounting and financial audits for a variety of industries and employee benefit plans. This includes defined contribution plans, defined benefit plans, health and welfare plans with a section 401(h) arrangement, and master trust investment accounts. Connect with Michelle on Twitter or LinkedIn.