Update on Employee Benefit Plan Auditing Standards (SAS 136)

The time is near for implementing the American Institute of Certified Public Accountants (“AICPA”) Auditing Standards Board (“ASB”) Statement on Auditing Standards No. 136 (“SAS 136”) Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA. SAS 136 was issued in an effort to improve the quality of these audits and the relevance of the auditor’s reports.

SAS 136 is effective for audits of ERISA plan financial statements for periods ending on or after December 15, 2021. SAS 136 is part of a full suite of SASs (SAS Nos. 134 to 140) that impact audits of all entities, with SAS 136 being specific to employee benefit plans.

Changes Impacting Plan Sponsors

SAS 136 contains the most comprehensive changes to employee benefit plan audits in years. There will be changes to the auditor’s opinion provided to the DOL as well as required audit procedures for plan audits. In addition, as part of engagement acceptance, SAS 136 requires the auditor to obtain the agreement and acknowledgment of plan management for its responsibilities, including management’s responsibility to maintain a current plan document and related amendments, administering the plan in accordance with the plan’s provisions and more.

SAS 136 requires auditors, when designing and performing audit procedures for employee benefit plans subject to ERISA, to consider relevant plan provisions that affect the risk of material misstatement (i.e., whether eligibility and contribution provisions are administered in accordance with the plan document). Auditors will be required to communicate in writing to those charged with plan governance on a timely basis “reportable findings” resulting from these procedures.

Reportable findings include findings that the auditor determines are significant and relevant to those charged with plan governance and/or internal control deficiencies that the auditor determines merit management’s attention and also include instances of noncompliance or suspected noncompliance with laws or regulations.
This communication will be in addition to the current communications required with those charged with plan governance.

An overarching theme of the changes is to increase plan sponsor awareness of its responsibilities and the meaning of what has traditionally been referred to as a “limited scope audit.” That terminology is superseded with SAS 136 and replaced with “ERISA Section 103(a)(3)(C) audit.” Auditors will no longer issue a disclaimer of opinion and will issue an ERISA Section 103(a)(3)(C) auditor’s report.

Before the plan’s auditor can accept the audit under SAS 136, a precondition is obtaining management’s agreement that it acknowledges and understands its responsibility for all of the following:

• Maintaining a current plan instrument, including all plan amendments.
• Administering the plan and determining that the plan’s transactions that are presented and disclosed in the ERISA plan financial statements conform to the plan’s provisions, including maintaining sufficient records with respect to each of the participants to determine the benefits due or which may become due to such participants.
• When management elects to have an ERISA Section 103(a)(3)(C) audit, determining whether:
  
  • An ERISA Section 103(a)(3)(C) audit is permissible under the circumstances.
  • The investment information is prepared and certified by a qualified institution as described in 29 CFR 2520.103-8.
  • The certification meets the requirements in 29 CFR 2520.103-5.
  • The certified investment information is appropriately measured, presented and disclosed in accordance with the applicable financial reporting framework.

Impact on the 2020 Form 5500

In May 2020, the AICPA ASB issued SAS No. 141, Amendment to the Effective Dates of SAS Nos. 134–140, which allows for a one-year delay in the effective date for this suite of standards, including SAS 136. The original effective date was for financial statements for periods ending on or after December 15, 2020. The delay was in recognition of the difficulties created by the pandemic that left many audit firms lacking the resources to implement the new standards in a timely and effective manner.

The 2020 Form 5500 Series was finalized with the assumption that SAS 136 would be effective for 2020 calendar year-ends, the original effective date. Thus, there are certain aspects of the 2020 Form 5500 that are not yet applicable due to the deferral.

Accordingly, Schedule H, Line 3b, now replaces a “yes”/“no” question about a limited scope audit with check boxes to indicate whether the ERISA section 103(a)(3)(C) audit was or was not performed pursuant to 29 CFR 2520.103-8.

The instructions for the questions on the Accountant’s Opinion have also been revised to reflect SAS 136. Accordingly, the changes made to line 3b do not reflect the deferral of SAS 136 to periods ending on or after December 15, 2021, and, as such, do not reflect the fact that auditors will be issuing accountant’s opinions using the current (pre-SAS 136) auditor reporting standards for the 2020 filing period. However, each year employee benefit plan audits traditionally referred to as “limited scope” audits are performed pursuant to 29 CFR 2520.103-8.