Employee Benefit Plan Audit Changes for 2021 Audits

Statement on Auditing Standards No. 136 (SAS 136), Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to Employee Retirement Income Security Act of 1974 (ERISA) is effective for audits for periods ending on or after December 15, 2021, and will be applicable for plans with years ending December 31, 2021, or later. SAS 136 creates more responsibilities for auditors, as well as increased duties of which plan sponsors should be aware. The primary objective of this Statement is to improve audit transparency while enhancing the value of the audit reports for audits of ERISA plan financial statements. The following key provisions may have major implications for 2021 audits and beyond.

Changes to Audit Reports, Engagement Letters, and Other Communications

SAS 136 will modify the auditor’s report, engagement letter, and other required communications to provide readers with a better understanding of the scope of the audit and to make clear the responsibilities of the plan sponsor and the auditor.

The auditor must communicate reportable findings, in addition to internal control deficiencies, in the letter to governance. Reportable findings are defined as matters that include any of the following:

  • An identified instance of compliance or suspected noncompliance with laws or regulations.
  • A finding arising from the audit that is considered significant and relevant to those charged with governance regarding their responsibility to oversee the financial reporting process.
  • An indication of deficiencies in internal control that have not been communicated to management by other parties and that are of enough importance to bring to management’s attention.

Limited-Scope Audits

Audits that are currently referred to as limited-scope audits will be known as ERISA Section 103(a)(3)(C) audits. These audits will no longer be considered as having a scope limitation, and the auditor will follow new performance and reporting requirements. Accordingly, the auditor will no longer issue a disclaimer of opinion but instead would issue an ERISA Section 103(a)(3)(C) auditor’s report in accordance with AU-C Section 703.  This report contains a two-pronged opinion that is based on the audit and on the procedures performed relating to the certified investment information. The link at the bottom provides illustrations of the new report in Exhibit A.

If the plan sponsor elects an ERISA Section 103(a)(3)(C) audit, the plan sponsor must affirm that this is permissible and that the qualified institution can certify the investment information.

Acknowledgment of Responsibility

Under SAS 136, the plan sponsor will be required to accept responsibility for its administration of the plan in the audit engagement letter. In addition, the plan sponsor will be required to provide certain written representations at the end of the audit regarding its responsibilities. These responsibilities include keeping a copy of the current plan document and amendments, confirming plan transactions are consistent with the plan document, and keeping adequate participant records to determine the benefits due under the plan. Although a plan sponsor may use a service provider to assist with the plan’s administration, it is the plan sponsor’s responsibility to make sure that plan documents are maintained and that plan transactions are accurate and properly documented.

The changes in audit procedures and documentation may mean that the auditor will be requesting additional information from management in order to perform the plan audit. Plan sponsors will want to be sure to recognize their new responsibilities, evaluate current procedures, and make any necessary adjustments to comply with the new requirements under SAS 136.

The Anderson ZurMuehlen Employee Benefit Plan Specialty Team is pleased to be a resource to you. If you have questions concerning SAS 136, please contact us.

This article was written by Jordan Wilson, CPA and Supervisor in our Billings office location.

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