In 2019, the American Institute of Certified Public Accountants (AICPA) issued Statement on Auditing Standards 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA (SAS 136) with the goal of improving audit quality for audits of employee benefit plans subject to Employee Retirement Income Security Act (ERISA). Originally set to be effective for audits of plan periods ending December 15, 2020, the SAS 136 effective date was delayed one year due to the COVID-19 pandemic and will now be effective for periods ending on or after December 15, 2021. Firms are allowed to early adopt this SAS, so plan sponsors should be ready for all of the changes that come along with it.
The adoption of SAS 136 requires the auditor’s engagement letter to include management’s responsibilities for maintaining a plan instrument as well as the preparation of financial statements. In doing this, each party’s responsibilities will be more formally outlined before the engagement begins. The auditor will be required to obtain a substantially completed copy of the Form 5500 prior to the issuance of the auditor’s report. Plan management should be aware of changes to the Form 5500 including part 3 of Schedule H, which addresses the change in the structure of the auditor’s opinion. As a result of these changes, it is crucial that plan management coordinate with both the auditor and the preparer of the 5500 to ensure the 5500 is prepared completely and furnished to the auditor in a timely manner.
SAS 136 creates additional auditor responsibilities by modifying the format of the auditor’s report. Historically, many audits of employee benefit plans were classified as limited-scope audits when the investments of the plan under audit were certified by a qualified trustee or custodian. The auditor then issued a disclaimer of opinion on the financial statements as only limited procedures were performed on the certified information. Upon the adoption of SAS 136, the traditional limited-scope audit will now be known as an ERISA Section 103(a)(3)(C) audit, and the auditor’s report will be formatted differently. The ERISA Section 103(a)(3)(C) auditor’s report outlines the auditor’s responsibilities with regard to professional judgements, professional skepticism, and communications with those charged with governance. Additionally, the auditor’s opinion will be a two-part opinion that will address both the certified and non-certified information. Plan governance can also expect expanded communications from auditors that will include reportable findings from the audit.
When auditors of plans with year ends after December 15, 2021 adopt SAS 136, it is important for plan sponsors and their service organizations to communicate regarding the expected scope and timing of their benefit plan audits. When this happens, the goals of SAS 136 will be achieved and the quality of employee benefit plan audits will increase, benefitting plan auditors, sponsors, service organizations, and most importantly, plan participants.