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Changes to Standards for ERISA Employee Benefit Plan Audits

Last week, the AICPA’s Auditing Standards Board (ASB) released new standards (SAS No. 136) regarding financial statement auditing of employee benefit plans. Designed to improve auditing transparency, the new standards include a focus on improving the overall transparency of the auditor’s report for ERISA plan financial statements.

Since 2015, increased focus has been paid to employee benefit plan audits, following a critical report from the U.S. Department of Labor that found serious deficiencies among employee benefit plan audits.

The new standards include changing requirements for auditors related to:

  • Engagement acceptance
  • Forming an opinion on ERISA plan financial statements
  • Auditor communication with those responsible for plan governance
  • Audit risk assessment and response
  • Written representations to be requested from management
  • Reporting on ERISA-required supplemental schedules

What Does this Mean for Plan Sponsors?

The new standards apply only to audits of employee benefit plans subject to ERISA.

While the changes generally concern auditor responsibilities, plan sponsors, including management and those responsible for governance, can expect changes including the following:

  • Those responsible for plan governance will benefit from increased communication from the auditor, as SAS 136 requires the auditor to report relevant findings in a timely manner via writing.
  • Plan sponsors can still elect to have a “limited scope audit”, which, going forward, will be referred to as an “ERISA section 103(a)(3)(C) audit”. If a limited scope audit is elected, plan sponsors will need to provide auditors with management representations acknowledging that the institution holding and certifying the applicable investment information is qualified and the information itself is appropriately measured, presented and disclosed. The scope of these audits will remain the same.
  • Plan sponsors will need to provide auditors with a substantially completed draft Form 5500, including forms and schedules that could have a material effect on the information in the financial statements. This will allow the auditor to identify any material inconsistencies and/or material misstatements of fact prior to dating the auditor’s report.

The new standards will take effect for audits of employee benefit plan financial statements for periods ending on or after December 15, 2020. Early implementation is not permitted.

To discuss these changes in more detail or review requirements for your upcoming employee benefit plan audit, please connect with a member of our team.

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