Plan Sponsors Must Meet New Financial Audit Requirements

March 7, 2022
Two women discussing documents in a notebook

Employee benefit plan sponsors have always had financial audit standards to meet, however they were limited in their scope. Not surprisingly, a study of employee benefit plan auditing and financial reporting models conducted by an ERISA Advisory Council uncovered many deficiencies. It was then determined that stronger auditing measures were needed.

As a result, in July 2019, the American Institute of Certified Public Accountants (AICPA) issued its “Statement on Auditing Standards (SAS) No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA (Employee Retirement Income Security Act).” SAS 136 became effective December 15, 2021. Under SAS 136, plan sponsors must meet new audit requirements.

What’s Changed

Previously, with limited-scope audits, audit firms would raise questions for plan sponsor management to answer about various aspects of a plan (i.e., investments, termination of service providers, number of loans taken by participants and their repayment, and other factors relating to plan’s status since the last audit).  The auditors relied on the plan’s management to provide accurate information and would not act to verify this input. Many auditors would simply conduct random samples and if a problem was uncovered, they would probe further.

Now, under the terms of the new limited-scope audit, the ERISA Section 103(a)(3)(C) audit, more detailed information will be required from plan sponsors which have the added requirement of thoroughly investigating their plan and providing independent assessment of their findings. Electing to use the ERISA Section 103(a)(3)(C) audit requires plan sponsors to engage an auditor for the scope of service, and then confirm with their service provider that they can offer a complete, valid certification statement.

Plan sponsors will have to document in a written report to the plan auditor that they have taken responsibility for plan administrative duties. Further, their reports will have to contain more detailed information relating to how plan documents are being maintained, that the plan is adhering to its operating provisions, and that adequate records are being maintained relating to the current and future benefits owed to plan participants. Additionally, plan sponsors will have to provide the plan auditor with a completed draft of the plan’s Form 5500 and its schedules in advance to enable the auditor to compare the form to its findings. For their part, auditors can no longer issue disclaimers of opinion when providing a formal opinion conveying their actions as plan auditors.

Reach out to Auditors to Discuss SAS 136

To facilitate compliance with the new audit requirements, plan sponsors should consider reaching out to their auditor for a complete explanation of the new financial auditing standard. Then, consider formulating a strategy on how best to work together. Plan sponsors should also make certain their auditor is competent, committed and fully-focused on meeting the new financial audit requirements.