In July 2019, the AICPA Auditing Standards Board (ASB) issued AICPA Statement on Auditing Standards No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA. This new standard prescribes certain new performance requirements for ERISA plan financial statement audits and changes the form and content of the related auditor’s report. The intent is to improve audit quality and enhance the communicative value and transparency of the auditor’s report. Also, to address diversity in practice and the work performed in an ERISA audit.
Why the new standard?
Long story short, the Department of Labor (DOL) performs audits of independent accounting firms and the employee benefit plan audits they perform. Through these audits, the DOL has found that audit quality has been declining. In response, the ASB determined that new standards were warranted in order to address the issue of audit quality, specifically as it relates to what is currently known as a “limited scope audit”.
Sure, it is going to be a significant change for auditors, but what does it mean for you, the Plan Sponsor? First things first, you have time. The new standard is effective for December 31, 2020 year-ends (if your plan has a 12/31 year-end), and early adoption is not permitted. Some items to note as it relates to plan sponsors are as follows:
For all employee benefit plan audits, plan sponsors will need to:
- Maintain a fully executed, updated plan document (and related amendments).
- Be able to represent that the plan’s transactions are in conformity with plan provisions.
- Maintain sufficient records for each participant to determine benefits when due.
For limited scope audits, plan sponsors will need to:
- Review the investment certification to determine that the investment information is prepared and certified by a qualified institution (in accordance with 29 CFR 2520-10 3-8).
- Determine that the certification covers both the completeness and accuracy of the investment information provided.
- Ensure the certification covers all plan investments (and that the institution is capable of certifying all plan investments).
Planning considerations for plan sponsors:
- Review the plan document and amendments to ensure they are all fully executed and complete.
- Read the plan provisions and ensure that they are consistent with the plan operations.
- Important Note! While the Summary Plan Description is a helpful document to understand plan provisions, it is NOT a legal document. You need to review the Adoption Agreement and/or Plan Document for this exercise.
- Pay specific attention to the areas where errors are commonly found under audit:
- Definition of plan compensation
- Eligibility, specifically as it relates to service requirements and part-time employees
- Review controls surrounding participant records:
- Are participant records up to date? Are current addresses on file?
- Are there controls in place to identify required minimum distributions and when they should begin?
- Obtain and review the current certification.
- Meet with plan auditor and service provider to:
- Discuss the certification and determine what assets are certified
- Ensure that the institution is a qualified institution
Be proactive.
The standard may have a huge impact on the type and amount of information your auditor asks for. Meet with your auditor well in advance of December 31, 2020 to ensure you are maintaining the records they will need to review. Proper planning will ensure a smooth transition to complying with the new standard.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
