Statement on Auditing Standards No. 136 (SAS 136), Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, will soon be effective for all employee benefit plans (EBPs) requiring an audit under the Employee Retirement Income Security Act of 1974 (ERISA). The new auditing standard is effective for years ending after December 15, 2021, after the American Institute of Certified Public Accountants moved back the implementation by one year due to the COVID-19 pandemic. Early adoption is still permitted as of the initial effective date.
Audits that were previously ‘DOL Limited Scope audits’ are now referred to as ERISA Section 103(a)(3)( c) audits under the new standard. The primary objective of SAS 136 is to provide financial statement users transparency on the scope and responsibilities of both management and the auditor and to improve the overall quality of EBP audits subject to ERISA.
SAS 136 Changes to the Audit Report
The most significant changes to the audit report and client communications resulting from SAS 136 are as follows:
- The auditor’s report will be in a new format. The auditor’s opinion paragraph will now be presented first while prior it had been presented near the end of the report. The basis for opinion paragraph will be immediately following the opinion paragraph, followed by the management and auditor’s responsibility paragraphs.
- An opinion on the financial statements will now be given. Auditors are now able to provide an unmodified audit opinion. Prior to SAS 136, the auditor would provide a disclaimer of opinion due to the scope limitation with certified financial information.
- The auditor’s report will expand on both management and the auditor’s responsibilities to provide financial statement users a more accurate depiction on what ERISA Section 103(a)(3)(c ) audits are all about. For example, the auditor’s responsibility section of the report will now include a statement about responsibilities for communicating the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters to those charged with governance.
SAS 136 Changes to Audit Procedures:
- Plan sponsors are required to determine the entity issuing the investment certification is qualified, the certification meets ERISA requirements, and they fully understand what is covered by the certification. Auditors will inquire of management about how they made these determinations.
- Reportable findings must be appropriately communicated by the auditor.
- Management is required to provide the auditor with a substantially complete Form 5500 draft prior to issuing the auditor’s report.
- The auditor has additional considerations for risk assessment.
Forge Financial and Management Consulting has a dedicated team and resources available to help employers navigate all aspects of their EBP. Please contact Forge with any questions regarding how SAS 136 will impact your EBP audit and stay tuned for additional developments regarding SAS 136 and other EBP articles.