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New Auditing Standard Brings Major Changes to Employee Benefit Plan Audits

New Auditing Standard Brings Major Changes to Employee Benefit Plan Audits

The Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA) establishes U.S. auditing standards (commonly referred to as generally accepted auditing standards or GAAS) for financial statement audits of for-profit companies, not-for-profit organizations and governmental entities on the federal, state and local levels.

The Auditing Standards Board of the AICPA has issued Statement on Auditing Standards (SAS) No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, (SAS No. 136, as amended). This standard affects employee benefit plan financial statement audits that are subject to the Employee Retirement Income Security Act of 1974 (ERISA). Beginning with 2021 Plan year financial statements, to be audited in 2022, auditors will follow a new auditing standard that includes new performance requirements for ERISA audits and changes the form and content of the auditor’s report.

The new standard includes new requirements in all phases of the audit, including the acceptance of the engagement; the assessment of and response to risk; communication with governance; performance procedures and reporting.

The new standard eliminates “limited scope audits,” which are now referred to as ERISA Section 103(a)(3)(c) audits. The new section establishes additional implementation and performance requirements specific to this type of audit.

Auditors will now request acknowledgement within the engagement letter of management’s responsibilities for maintaining a current Plan instrument, administering the Plan and providing a substantial draft Form 5500 prior to the date of the auditor’s report.

In addition, at the conclusion of the engagement, the new standard requires the auditor to obtain written management representations of the responsibilities listed above. The standard also requires new acknowledgements related to management’s responsibilities when electing a 103(a)(3)(c) audit, which include:

  • Determining whether such an audit is admissible.
  • Confirming the investment information is prepared and certified by a qualified institution.
  • Verifying the certification meets Department of Labor (DOL) requirements.
  • Verifying the certified investment information is appropriately calculated and reported in compliance with the applicable financial reporting framework.

The auditor may also request additional information from Plan management to perform the Plan under the new standard, which may result in the need for Plan management to spend more time preparing for the audit at year end.

The BSSF Employee Benefit Plan Practice is here to help your organization navigate this new standard for your 2021/2022 plan year ERISA financial statement audits. Contact us today to learn more!

Posted In: Audit | Employee Benefit Plan Audits | Insights

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