Are Limited Scope Audits Going Away?
No, limited scope audits are not going away!
In July 2019, the American Institute of Certified Public Accountants (AICPA) Auditing Standards Board (ASB) issued a new Statement on Auditing Standards (SAS) No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plan Subject to ERISA (SAS 136). SAS 136 prescribes certain new performance requirements for an audit of financial statements of employee benefit plans and changes the form and content of the related auditor’s report. The goal of SAS 136 is to make the auditor’s report easier to understand and also more relevant, leading to improved audit quality.
SAS 136 is effective for audits of ERISA plan financial statements for periods ending on or after December 15, 2020, and early adoption is prohibited. However, plan sponsors and auditors should start planning for the implementation before the effective date. Below are the top key changes to get you started:
1. The standard addresses requirements specific to:
- Engagement acceptance – includes new engagement acceptance requirements in addition to the preconditions for an audit in accordance with AU-C section 210, Terms of Engagement. Included in the engagement letter is management’s responsibilities for maintaining a current plan instrument, administering the plan, and providing the auditor with a substantially complete draft of IRS Form 5500 prior to the dating of the auditor’s report. A draft of Form 5500 includes the financial statements and ERISA required supplemental schedules. Also, there is a requirement relating to management’s responsibilities in determining whether the entity certifying the investment is a qualified institution.
- Audit risk assessment – establishes proper controls and the importance of understanding the plan provisions as it relates to risk assessments.
- Communication of reportable findings – requires auditors to make certain communications with management and/or those charged with governance, in a timely manner in addition to having discussions of other matters.
2. The form and content of the auditor’s report for ERISA plans have changed:
- For ERISA plan audits (formerly referred to as full-scope reports), the report will now be aligned with SAS No.134 Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements, which require the opinion section to be placed first, followed by the basis of opinion section. Also, included in the new report is an enhanced management responsibilities section specific to ERISA plans. It requires the auditor to include a statement about whether, in the auditor’s opinion, the form and content of the of the information in ERISA-required supplemental schedules conform with the Department of Labor’s Rules and Regulations for Reporting and disclosure under ERISA.
- Finally, there is a new form of report called the ERISA Section 103(a)(3)(C) report (formerly called limited-scope report). The scope and nature section is required to be placed first, followed by a new two-part opinion and a new basis for opinion section, along with enhanced management and auditor’s responsibilities sections. Also, included is specific reporting on the ERISA required supplemental schedules.
This is the season for ERISA audits and the perfect time to educate yourself about the new form and content of the auditor’s report and of management responsibilities.
Authors: Jennifer Keshwar, CPA, Employee Benefit Plan Services Group | [email protected]
William Kloppe, CPA, MSA, Employee Benefit Plan Services Group | [email protected]
ERISA
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