In July 2019, the AICPA issued a new standard, 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 brings significant changes to the auditor’s report in a retirement plan’s audited financial statements, as well as modifications to the responsibilities of plan management and plan auditors for the audit, and updates to standards on certain audit procedures.
Retirement plans that undergo a limited-scope audit, will now be referred to as an ERISA Section 103(a)(3)(C) audit. The contents of the auditor’s report change significantly with this new standard. These changes are to the layout of the report, the auditor opinion, and updated information about the responsibilities of plan management and the responsibilities and audit procedures of the auditor. The auditor’s opinion will change from being labeled as a disclaimer opinion to having two opinions. The first opinion is on the reporting of the amounts and disclosures in the financial statements, in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), that are not covered by the certification. The second opinion is on the accuracy of the certified assets of the plan that meets the requirements of the ERISA Section 103(a)(3)(C). The auditor’s report also gives a separate opinion on the supplemental schedules.
The responsibilities of plan management and the auditor are outlined in the audit engagement letter and the auditor’s report. Added responsibilities for plan management under SAS No. 136 includes the ability to determine that an ERISA Section 103(a)(3)(C) audit is permissible, the investment information is properly certified by a qualifying institution, and the certified investment information is appropriately measured and disclosed in accordance with U.S. GAAP. Added responsibilities for plan auditors under SAS No. 136 is to meet the independence and ethical requirements relating to the audit. The requirement for independence and ethical standards is not a new standard for auditors, the update that comes with the SAS No. 136 is that it is now explicitly stated in these documents.
SAS No. 136 requires a draft of the plan’s IRS Form 5500 to be completed and reviewed by the auditor prior to issuing the plan’s financial statements. This is to prevent and correct any material inconsistencies between the audited financial statements and the IRS Form 5500, prior to the issuance of the audited financial statements.
Under SAS No. 136, more emphasis will be placed on the provisions of the plan document. Any findings from the auditor based on audit procedures to ensure compliance with the plan document will be communicated to management and evaluated for further disclosure.
SAS No.136 comes into effect is for periods ending on or after December 15, 2021 (applicable to audits for 2021 plan year ends that are performed during 2022).
We encourage plan management to communicate with your third-party administrator to ensure that they understand these new responsibilities and to become familiar with new version of the auditor’s report. Lastly, any known differences in administering the plan to what is written in the plan document should be reviewed and either update current practice to match the plan document or amend the plan document.
Tania Quigley, CPA
Tania Quigley has been a member of Cerini & Associates’ audit and consulting practice area for ten years where she focuses on serving the firms nonprofit and employee benefit plan clientele. Tania has experience in performing financial statement audits and reviews, tax return preparation, cost report preparation and filing, retirement plan audits, and other consulting. Tania brings her expertise, diversified background, and helpful approach to all of her engagements.