SAS No. 136: Changes to Employee Benefit Plan Audits

SAS No. 136: Changes to Employee Benefit Plan Audits

In July 2019, the American Institute of Certified Public Accountants (AICPA) Auditing Standards Board (ASB) issued a new Statement on Auditing Standards (SAS). Referred to as SAS No. 136, it makes significant changes to employee benefit plan (EBP) auditing.

The objective of the standard was to improve audit transparency by enhancing the auditors’ reporting model for ERISA plan audits. To do so, the ASB believed prescribing new performance requirements, as well as changing the form and content of the audit report would improve audit performance and enhance audit quality.

SAS No. 136 has been codified in AU-C section 703, Forming an Opinion and Reporting on Financial Statements of Employee benefit plans subject to ERISA, in AICPA professional standards.

Here is what you should know:

Effective Date
The original effective date was scheduled to be effective for periods ending on or after December 15, 2020. However, the Auditing Standards Board (ASB) voted to delay the effective date. The new effective date for this standard is for periods ending on or after December 15, 2021.

Changes
SAS No. 136 clarifies plan management and auditor responsibilities; some of which are now included in the audit report and engagement letter. In addition, there are expanded requirements in all phases of the audit. Engagement acceptance, performing risk assessment procedures related to the plan instrument and responding to those identified risks, and communication additional matters (reportable findings) to those charged with plan governance to name a few.

Also, there are new changes to issuing a new form of the auditor’s report. When management elects to instruct the auditor to not perform additional procedures with respect to investment information certified by a qualified institution, the Plan now has an ERISA Section 103 (a)(3)(c) audit. In that audit, it is no longer referred to as a limited scope, and a disclaimer of opinion will no longer be necessary since this is no longer to be a scope limitation. Lastly, the auditor will follow new performance and reporting requirements which contains a two-pronged opinion that is based on the audit and on the procedures performed relating to the certified information.

How Do These Changes Affect Plan Management?
Plan sponsors and management of benefit plans subject to ERISA can expect changes to management responsibilities, the audit report, and communications. Here’s a look at how.

Management Responsibilities Under SAS No. 136
Under ERISA section 103 (a)(3)(c) management responsibilities include determining

• Section 103(a)(3)(c) audit is permissible
• Investment information is prepared and certified by a qualified institution
• Certification meets the ERISA requirements and understands the investments and disclosures that are being certified
• Certified information is appropriately measured, presented, and disclosed

Audit Report Changes Under SAS No. 136
Under ERISA section 103 (a)(3)(c) audit report will look different and will include procedures performed on both certified and noncertified information as well as basis for opinion section. Also, the audit report is intended to be more transparent as to plan sponsor and auditor responsibilities, regardless of whether an ERISA section 103 (a)(3)(c) audit or non-ERISA Section 103 103 (a)(3)(c), formerly referred to full scope audit, is performed.

Communications Under SAS No. 136
SAS No. 136 requires the audit to communicate, in writing, reportable findings, including identified or suspected noncompliance, to plan management and those charged with governance. Formal communications of management pertaining to plan instruments, administering the plan, and providing the auditor of a draft of Form 5500 that is substantially complete.

Preparing for the SAS No. 136 Implementation
The adoption of SAS No. 136 will require planning and coordination between plan sponsor, auditor, and Form 5500 preparer during the planning stages. This would include making plan sponsors aware of and provide the additional documentation the auditor will request under ERISA section 103 (a)(3)(c). By doing this in the planning stages, this can help identify those additional items that will be needed earlier. That should increase the effectiveness and efficiency of the audit.

This blog post was contributed by Brian Jamnik. To contact the author email us at info@herbein.com. 

Interested in additional information? Check out our Herbein Q+A video on the employee benefit plan standards here.