Auditing Standards No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA (SAS 136), is meant to improve an auditor’s performance, enhance the quality of employee benefit plan audits, and increase the communicative value of the auditor’s report for ERISA plan financial statements. SAS 136 was originally effective for audits of financial statements for periods ending on or after December 15, 2020. However, an amendment was issued which allowed for a one-year delay in implementation.
ERISA Section 103(a)(3)(C) Audit Requirements
The new standard eliminates the “limited scope audit” and instead refers to this type of audit as an “ERISA Section 103(a)(3)(C) audit” as excluding certain investments from audit testing is no longer considered an audit scope limitation. To qualify for this type of an audit, plan management must acknowledge responsibility for determining:
• An ERISA Section 103(a)(3)(C) audit is permissible;
• The investment information is prepared and certified by a qualified institution;
• The certification meets the Department of Labor (DOL) requirements; and
• The certified investment information is appropriately measured, presented, and disclosed for financial statement purposes.
Your plan’s investment provider may have specific material this year assisting plan management with ensuring the above criteria are met to qualify for an ERISA Section 103(a)(3)(C) audit. Your plan auditor can also provide assistance in this matter.
New Standard Impacting Plan Management
Engagement Acceptance: The auditor is required to obtain management’s agreement that they acknowledge and understand their responsibility for matters such as:
• Maintaining current plan documents and all amendments;
• Administering the plan and determining the plan’s transactions follow plan provisions, including maintaining sufficient participant records; and
• Providing the auditor a draft of Form 5500 that is “substantially complete” prior to the completion of the audit.
It is important to work with your Third Party Administrator (TPA) to ensure the 5500 is timely prepared for the auditor’s review.
Reportable Findings: While performing required procedures, the auditor may identify certain matters that result in “reportable findings” to be communicated to those charged with governance of the plan.
Reportable findings include:
• Noncompliance with laws or regulations;
• Findings that are significant to the responsibility of governance to oversee the financial reporting process; and
• Internal control deficiencies that have not been communicated to management.
Significant deficiencies and material weaknesses in internal control are still required to be communicated by the auditor. These communications are valuable to plan management as ways to improve plan administration and remain compliant with rules and regulations.
Contact Joshua J. Blom, CPA for more information about this new standard or your plan’s audit.