In 2015, the Ministry of Labour published a study that found that 39% of employee benefit plan audits had one or more major deficiencies. Because of these results, the Ministry of Labor asked the American Institute of Chartered Accountants (AICPA) to launch a project to strengthen the quality of employee benefit plan audits and improve auditor reporting.
In response, the AICPA in July 2019 issued Auditing Standards Statement No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA (SAS 136). on or after December 15, 2020. However, in May 2020, the AICPA issued Auditing Standards Statement No. 141, which allowed a one-year delay and extended the effective date to planning periods ending December 15. 2021 or later. (plan audits carried out in 2022) due to the difficulties imposed by COVID-19. Early adoption of SAS 136 was permitted.
The result is that SAS 136 significantly changes the way auditors are required to audit and report on employee benefit plans subject to the Employee Retirement Income Security Act (ERISA). It aims to improve the quality of audits, clarify reporting requirements and increase the transparency of the auditor’s report.
SAS 136 also deals with management responsibilities. In preparation for auditing your plan — even before an auditor accepts the engagement — understand your responsibility to:
1. Maintain a current plan instrument, including all plan amendments
2. Administer and determine whether the operations of the plan presented and disclosed in the financial statements of the plan comply with the provisions of the plan
3. Maintain sufficient records on each participant to determine benefits currently due or likely to become due
4. Provide your auditor with a substantially completed draft Form 5500, including forms and schedules that could have a material effect on the plan, qualitative and quantitative considerations on the information contained in the financial statements, and the additional schedule required by ERISA, before the date of the auditor’s report
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One of the most significant changes from the implementation of SAS 136 will be the elimination of the limited scope audit of the Department of Labor. Under previous auditing standards, when performing a limited scope audit, your auditor was required to issue a disclaimer because the certified investment information had not been audited. Limited scope audits are permitted under ERISA Code Section 103(a)(3)(C) and therefore under SAS 136 such audits will now be referred to as “ERISA Section 103(a)”. (3)(C)”. This is no longer considered a scope limitation, but rather allows the auditor to issue an unmodified form of opinion. Under SAS 136, if you choose to perform an ERISA Section 103(a)(3)(C) audit, you will be required to provide your auditor with additional management representations acknowledging three key points:
1. An ERISA Section 103(a)(3)(C) audit is permitted
2. The entity that prepares and certifies the investment information is qualified to do so (must be a bank, trust company or insurance company)
3. Certified investment information is appropriately measured, presented and disclosed in accordance with the applicable financial reporting framework
SAS 136 also makes significant changes to the form and content of the auditor’s report included in the plan’s financial statements. With SAS 136, your auditor will not reject an opinion, but instead provide a new two-part opinion unique to ERISA employee benefit plan audits stating:
1. If the information not covered by the certification is fairly presented
2. Whether the information about the certified investments in the financial statements agrees or is derived from the certified investment statements
In addition, your auditor will review certain plan provisions that affect the risk of material misstatement (for example, whether eligibility provisions have been met for employees to participate in the plan and receive contributions). After testing the provisions of the plan, the auditor will evaluate the results and communicate in writing reportable findings that are material and relevant to those charged with governance.