Due to the impact that COVID-19 has had on our economy, the AICPA Auditing Standards Board voted to defer the effective date of Statements on Auditing Standards (SAS) No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, as amended, until periods ending on or after December 15, 2021 – or, in other words, Plan years ending December 31, 2021, to be audited in 2022.
SAS No. 136 could be the most significant change to the rules of Employee Benefit Plan audits in the past 20 years. Due to SAS No. 136 changing the wording of the independent audit opinion, it significantly changes the audit responsibilities for the Plan, the Plan sponsor and the audit firm.
Some of the significant changes required by the SAS No. 136 are as follows:
- Independent audit opinions will be expanded to four to five pages in length due to increased required wording.
- Important for Plan sponsors, the audit opinions will be expanded to spell out the “Responsibilities of Management”, which will include the ability to continue as a going concern, maintain current Plan amendments, administer the Plan and maintain sufficient records with respect to each participant, to determine the benefits due or which may become due.
- From the perspective of the public accounting industry, one of the largest changes is the limited scope opinion (for example, receiving a certified statement from a bank). An audit firm will no longer be allowed to disclaim on an opinion for a Plan due to investments being certified. Instead, the new opinion wording provides a detailed explanation of audit procedures performed or not performed related to the certified investment information.
- The audit opinion will include a detailed listing of certain audit procedures performed during the audit engagement. This is unique to ERISA – no other audit opinions include this.
- Engagement letter and management representation letter wording will significantly change due to the changes in the audit responsibilities as well.
- SAS No. 136 specifically discusses how to handle “material” and “not material” prohibited transactions discovered during the audit. The inclusion of guidance on how to handle “not material” transactions is significant and will likely require more disclosure within the financial statements, the opinion and supplemental schedules.
In conclusion, the one-year delay allows for more communication between audit firms and their clients to truly understand how the implementation of SAS No. 136 will change the responsibilities for employee benefit plan audit engagements. Please contact our BSSF Employee Benefit Plan Practice leaders if you would like to discuss further.
Disclaimer: This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our Firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.