After a one-year delay, the Statement on Auditing Standards (SAS) No. 136, Forming an Opinion and Report on Financial Statements of Employee Benefit Plans Subject to ERISA, has finally taken effect. The statement is effective for audits of ERISA plan financial statements for periods ending after December 15, 2021.
SAS 136 prescribes certain new performance requirements for financial statement audits of ERISA employee benefit plans. It also changes the form and content of the related auditor’s report.
New Terminology
One of the biggest changes brought about by SAS 136 is a change in terminology. What were once referred to as “limited scope audits” are now referred to as ERISA Section 103(a)(3)(c) audits. This is not considered a scope limitation and will no longer be considered a disclaimer of opinion.
The audit report will provide an opinion on whether the information not covered by the certification is presented fairly. It will also provide an opinion on whether the certified investment information contained in the financial statements agrees with or is derived from the certification.
Sponsors’ and Auditors’ Responsibilities
Under SAS 136, plan sponsors must acknowledge and understand their responsibility for maintaining a current plan instrument, including all plan amendments, as well as administering the plan and determining that the plan’s transactions are in conformity with its provisions (including maintaining sufficient records).
When sponsors elect to have a Section 103(a)(3)(c) audit performed, they must determine several different things, including whether:
- Such an audit is permissible under the circumstances;
- The investment information is prepared and certified by a qualified institution;
- The certification meets the requirements in 29 CFR 2520.103-5; and
- The certified investment information is appropriately measured, presented, and disclosed.
Auditors will ask sponsors about how they determined that the entity preparing and certifying the investment information is a qualified institution. Auditors will also obtain management’s agreement to provide a substantially complete draft of Form 5500 prior to the dating of the auditor’s report.
Plan sponsors, meanwhile, must provide written representations indicating that they have provided the auditor with the most current plan instrument and all plan amendments. Representations must also acknowledge the sponsor’s responsibility for administering the plan and determining that transactions presented and disclosed in the financial statements conform with the plan’s provisions.
A Big Change for Sponsors
SAS 136 represents a big change this year for employee benefit plan sponsors—especially when it comes to knowing how to answer questions posed by plan auditors. Now is the time to familiarize yourself with this new standard if you haven’t done so yet.
Auditor Procedures Under SAS 136
Statement on Auditing Standards (SAS) No. 136 lists specific procedures to be performed by employee benefit plan auditors when conducting an ERISA Section 103(a)(3)(c) exemption audit. They include the following:
- Evaluate management’s assessment of whether the entity issuing the certification is a qualified institution.
- Identify which investment information is certified.
- Obtain a representation from management that they have read the certification.
- Compare the certified investment information with the related information presented and disclosed in the financial statements and supplementary information.
- Read the disclosures related to the certified investment information to assess whether they are in accordance with the presentation and disclosure requirements of GAAP.