Statement on Auditing Standards (SAS) No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans, prescribes new requirements for an audit of financial statements of employee benefit plans subject to the Employee Retirement Income Security Act of 1974 (ERISA). One objective of SAS 136 is to provide the reader a better understanding of the scope of the audit and to make clear the responsibilities of the plan administrator/sponsor and the auditor.
Notable changes include the following:
- Engagement acceptance.
- Audit risk assessment and response, including the auditor’s consideration of relevant plan provisions.
- Communications of reportable findings to management and those charged with governance.
- The auditor’s responsibilities relating to the ERISA required supplemental schedules and the Form 5500.
- Limited-scope audits are now referred to as ERISA Section 103(a)(3)(C) audits.
- The form and content of the related auditor’s reports have changed.
- The form and content of engagement letters have changed.
- Increased responsibilities on the auditor and the plan administrator/sponsor.
ERISA Section 103(a)(3)(C) audits
Prior to SAS 136, the plan administrator could instruct the plan auditor to perform a limited scope audit and not perform any auditing procedures with respect to investment information by obtaining a properly prepared investment certification. This allowed the auditor to issue a disclaimer of opinion. Under SAS 136, auditors can no longer disclaim an opinion but need to issue an opinion on whether the information not covered by an investment certification is fairly presented in all material respects and whether the investment information is derived from or agrees with the certification.
The plan administrator/sponsor has additional responsibilities under SAS 136 such as:
- Explicitly electing to have an ERISA Section 103(a)(3)(C) audit.
- Assessing whether the entity issuing the certification is a qualified institution when electing an ERISA Section 103(a)(3)(C) audit.
- Ensuring the certification meets the ERISA requirements of 29 CFR 2520.103-8 and gaining an understanding which investments and disclosures are certified.
- Maintaining and providing a current plan document.
- Preparing and fairly presenting the financial statements.
- Providing a substantially completed draft Form 5500 prior to the auditor being able to issue a report (if your auditor prepares your Form 5500, you will need to approve the draft Form 5500 before the audited financial statements can be issued).
The new ERISA section 103(a)(3)(C) Audit Reports will contain, in order, the following sections:
- Scope and Nature of the ERISA Section 103(a)(3)(C) Audit
- Opinion
- Basis of Opinion
- Going Concern (if applicable)
- Key Audit Matters (if applicable)
- Responsibilities of Management for the Financial Statements
- Auditor’s Responsibilities for the Audit of the Financial Statements
- Other Matter – Supplemental Schedules Required by ERISA
SAS 136 is effective for audits for periods ending on or after December 15, 2021 – or for calendar year audits ending December 31, 2021.
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