Last month, the American Institute of Certified Public Accountants (AICPA) approved the issuance of the Statement on Auditing Standards Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA. For audits of ERISA plan financial statements only, this SAS would apply in place of AU-C Section 700, Forming an Opinion and Reporting on Financial Statements, and paragraph .09 of AU-C section 725, Supplementary Information in Relation to the Financial Statements as a Whole (AICPA, Professional Standards). The SAS also would amend various other AU-C sections in AICPA Professional Standards.
What are the Highlights of
the New Standard?
- Audits previously referred to as “limited scope audits” will now be referred to as “ERISA Section 103(a)(3)(c) Audits” since the new standard requires new performance and reporting requirements specific to those audits, and as such, will no longer be considered to have a scope limitation.
- There are new engagement acceptance requirements that must be included in the engagement letter, including maintaining a current plan instrument, administering the plan and providing the auditor a draft IRS Form 5500 prior to the date of the auditor’s report.
- The new standard will cause significant changes to the form and content of auditors reports on plan financial statements as well as ERISA required supplemental schedules.
- Management will need to provide the auditor with a draft IRS Form 5500 so that the auditor can review the draft for material inconsistencies with the audited ERISA plan financial statements. The auditor will then determine if either the draft 5500 or the financial statements require revision.
- The auditor must have written management representations regarding their certainty of management’s responsibilities for administering the plan.
- For organizations having a ERISA Section 103(a)(3)(c) Audit, they are required to provide certification of investment information prepared and certified by a qualified institution so that it may be compared to information in the ERISA plan financial statements and ERISA required supplemental schedules.
- The auditor will be required to make certain communications with Management and/or those Charged with Governance. These communications will include reportable findings and will include a description of the reportable finding, sufficient information to enable those Charged with Governance/Management to understand the context of the communication, and an explanation of the potential effect of the reportable findings on the financial statements or to the plan.
The new standard is anticipated to be in effect no earlier for financial statement audits for periods ending on or after December 15, 2020. Early adoption will not be permitted.
Note this summary is not meant to substitute for reading the proposed new standard in its entirety.