In July 2019, the AICPA Auditing Standards Board (ASB) issued
AICPA Statement on Auditing Standards (SAS) No. 136, Forming an Opinion and
Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA
(new EBP SAS). This EBP SAS prescribes new performance requirements for
Employee Retirement Income Security Act (ERISA) plan financial statement audits
and changes the form and content of the related auditor’s report to improve
audit quality and enhance the communicative value and transparency of the
report. It includes new requirements in all phases of an audit of ERISA plan
financial statements, including engagement acceptance, risk assessment and
response, communication with those charged with governance, performance
procedures, and reporting.
Significantly, audits performed pursuant to ERISA Section
103(a)(3)(C) will no longer be referred to as a “limited scope audit.” Going
forward, they will be referred to as “ERISA Section 103(a)(3)(C) audits.” The new
EBP SAS notes that ERISA Section 103(a)(3)(C) audits are unique to EBPs and not
considered a scope limitation. Therefore, the auditor would no longer issue a
modified opinion (typically a disclaimer of opinion) due to information
certified by a qualified institution. Instead, the report provides a
two-pronged opinion based on the audit and on the procedures performed relating
to the certified investment information that includes the following:
- An opinion on whether the information not covered by the certification
is presented fairly
- An opinion on whether the certified investment information in
the financial statements agrees to or is derived from the certification
The new EBP SAS requires the auditor to perform certain procedures
when planning and performing the audit that were not expressly required in the
past. Most of the now-required procedures had been suggested audit procedures
in the AICPA Employee Benefit Plans: Audit and Accounting Guide.
The new EBP SAS significantly changes the form and content of the
auditor’s report, too. For the first time, generally accepted auditing
standards require an ordering of certain report elements for all audit
engagements, including ERISA audits. The EBP SAS also requires the use of
specific headings. The “Opinion” section is required to be placed first,
followed by “Basis for Opinion.” Basis for Opinion is new for all entities for
which an opinion is issued, which includes a statement that the auditor is
required to be independent. For ERISA Section 103(a)(3)(C) reports, the “Scope
and Nature of the ERISA Section 103(a)(3)(C) Audit” section is required to be
placed before the Opinion and Basis for Opinion sections.
For an audit not subject to ERISA Section 103(a)(3)(C), the new
EBP SAS requires the auditor, in situations when the auditor’s report on the
audited financial statements contains an unmodified or qualified opinion, to
include a statement about whether, in the auditor’s opinion, the form and
content of the information in the accompanying schedules are presented in
conformity with the Department of Labor’s Rules and Regulations for Reporting
and Disclosure under ERISA.
The new EBP SAS requires the auditor to make appropriate
arrangements with management to obtain and read the draft Form 5500 to identify
material inconsistencies, if any, with the audited financial statements prior
to dating the auditor’s report. If a material inconsistency is identified, the
auditor should determine whether the audited financial statements or the draft
Form 5500 needs to be revised.
The new EBP SAS also requires the auditor to obtain certain
management representations in writing at the conclusion of the engagement,
including new acknowledgements related to management’s responsibilities with
respect to the investment certification when management elects to have an ERISA
Section 103(a)(3)(C) audit.
The auditor is now required to make EBP-specific communications
with management and/or those charged with governance that includes the timely
communication of reportable findings (as defined in the new EBP SAS). For an
ERISA Section 103(a)(3)(C) audit, if the auditor has concerns about whether the
entity preparing and certifying the investment information is a qualified
institution, the auditor is required to discuss those concerns with management.
The new EBP standard will be effective for audits of ERISA plan
financial statements for periods ending on or after Dec. 15, 2020. This means
that 2020 year-end audits being performed in 2021 will be required to follow
the performance and reporting requirements of this SAS, including using the new
form of the auditor’s report. The new EBP SAS prohibits early adoption.
The AICPA has published At a Glance: New Auditing Standard for
Employee Benefit Plans, which gives a summary of the changes coming for benefit
plan audits, as well as the audit advisory EBP SAS No. 136: Forming an Opinion
and Reporting on Financial Statements of Employee Benefit Plans Subject to
David and JulieAnn Verrekia, CPA, will address new AICPA standards at PICPA's 2020 Employee Benefit Plans Conference on May 19
at Penn State Great Valley in Malvern.
David A. Torrillo, CPA, ABV, CVA, is managing member of Torrillo
& Associates LLC in Glen Mills. He can be reached at email@example.com.