If you’re an employer with more than 100 participants in your employee benefit plan (EBP), you may notice some changes in this year’s EBP audit. A new accounting standard, SAS No. 136, is effective for periods ending on or after December 15, 2021 and makes significant changes to reporting and performance requirements for EBPs subject to ERISA.
SAS No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to Employee Retirement Income Security Act of 1974 (ERISA), was issued by the AICPA’s Accounting Standards Board to improve the transparency and reporting model of ERISA plan financial statements and clarify the roles and responsibilities of each party involved in the audit process.
The standard covers many auditor procedures and responsibilities but also makes changes to certain phases of the EBP audit that impact the plan sponsor.
Audit Opinion
Under the new standard, plan sponsors can no longer elect a “limited scope audit.” This option has been replaced with the ERISA section 103(a)(3)(C) audit, which does not have a scope limitation. The audit opinion will now include a new basis for opinion section, as well as details on procedures performed on both certified and non-certified information.
Instead of a disclaimer of opinion, the auditor will issue an opinion on the fair presentation of information in the financial statements not covered by the certification and an opinion on whether the investment information in the financial statements reconciles with information in the certification.
Alternatively, the plan sponsor can elect a “full scope” audit, which is now referred to as a non-ERISA section 103(a)(3)(C) audit.
Auditor Communications
Auditors are now required to communicate (in writing) all reportable findings to plan management and those charged with governance. Reportable findings include:
- An identified instance of noncompliance or suspected noncompliance with laws or regulations.
- A finding arising from the audit that, in the auditor’s professional judgment, is significant and relevant to those charged with governance, regarding their responsibility to oversee the financial reporting process.
- An indication of deficiencies in internal controls identified during the audit that haven’t been communicated to management by other parties and that, in the auditor’s professional judgment, are of sufficient importance to merit management’s attention.
Responsibilities of Plan Sponsor and Management
There are several new requirements under the new standard that plan sponsors and management should be aware of and prepare to meet, such as:
- Affirming the appropriateness of certified investment information
- Providing a substantially complete Form 5500 draft to the auditor prior to the audit report being issued
- Acknowledging responsibility for the plan’s administration in the audit engagement letter
- Providing written representation regarding management’s responsibilities for maintaining a current plan instrument
- If electing a Section 103(a)(3)(C) audit, acknowledging in writing that the entity meets all conditions to make the election and ensuring the certification is issued by a qualified institution and meets ERISA requirements
As you prepare to comply with the new standard, speak with your auditor about these new requirements and how you can plan ahead for a smooth transition. For more information, please contact your Grassi advisor or Michele Lindner, Principal in Grassi’s Employee Benefit Plan Audit practice.
