Your Benefit Plan Limited Scope Audit Report May Soon Look Different…

There will soon be a new AICPA Statement on Auditing Standard, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA (“EBP SAS”).

The EBP SAS addresses an auditor’s responsibility to form an opinion and report on the audit of financial statements of EBPs subject to the Employee Retirement Income Security Act of 1974 (“ERISA”), as well as the form and content of the auditor’s report issued as a result of an audit of ERISA plan financial statements.  The SAS also includes new requirements for engagement acceptance, audit risk assessment and response, communication with management or those charged with governance, procedures for an ERISA Section 103(a)(3)(C) audit, written representations and considerations relating to Form 5500 filing.

One of the biggest changes is in terminology, as “limited scope audit” is replaced with “ERISA Section 103(a)(3)(C) audit” and, instead of a disclaimer opinion, an auditor will issue an opinion on the audit of the plan’s financial statements in accordance with ERISA Section 103(a)(3)(C).

I will highlight certain of the key changes in the auditor’s report when management elects an ERISA Section 103(a)(3)(C) audit. The first sentence will state that the audit was performed as permitted by ERISA Section 103(a)(3)(C). There is a new section titled “Nature of the ERISA Section 103(a)(3)(C) Audit” which speaks to the fact that management elected to have an audit performed in accordance with ERISA Section 103(a)(3)(C) and the audit did not extend to any statements or information related to assets held for investment of the plan by a qualifying institution provided that such information is certified in accordance with DOL regulations.

The “Management’s Responsibility for the Financial Statements” paragraph will include management’s responsibility for maintaining a current plan instrument, including all amendments, administering the plan, determining whether transactions presented and disclosed in the financial statements conform with the plan’s provisions and maintaining sufficient records to determine the benefits due to participants.

The “Auditor’s Responsibility” paragraph will be expanded to state the auditor obtained and read the certification, compared the certified investment information with the related information presented and disclosed in the financial statements, and read the related disclosures to access whether they are in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”); and that the audit did not extend to the certified investment information.  Accordingly, the objective of an ERISA Section 103(a)(3)(C) audit is not to express an opinion about whether the financial statements are presented fairly in accordance with U.S. GAAP.

The “Opinion” paragraph will attest to fair presentation of the amounts and disclosures in the financial statements, other than those derived from certified investment information, and that the information related to assets held and certified by a qualified institution agrees with the information prepared and certified by an institution that management determined meets the requirement of ERISA Section 103(a)(3)(C). 

The new EBP SAS, once accepted, is expected to be effective for years ending on or after December 15, 2020 and early adoption will not be permitted.