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Limited Scope Audits Under SAS 136

Over the past few years, the Department of Labor (DOL) has expressed concerns over the quality of ERISA employee benefit plan audits. In response, the American Institute of Certified Public Accountants (AICPA) Auditing Standards Board (ASB) issued Statement on Auditing Standards No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA (EBP SAS). The original effective date of the EBP SAS was for periods ending on or after December 15, 2020. However, the ASB voted to delay the effective date, and the new effective date is for periods ending on or after December 15, 2021. In this article, we will discuss how the EBP SAS will change the auditor’s report for what was previously known as a “limited scope” audit.

In a limited scope audit, plan sponsors can instruct their auditor not to perform any auditing procedures with respect to investment information prepared and certified by a bank or similar institution, or by an insurance carrier that is regulated, supervised, and subject to periodic examination by a state or federal agency that acts as a trustee or custodian. Under current auditing standards, the audit report that is produced under these circumstances is a “disclaimed audit opinion,” which is acceptable by the DOL. The EBP SAS still allows for a “limited scope audit,” but making this election is no longer considered a scope limitation. The name of this type of audit will now be referred to as an “ERISA Section 103(a)(3)(C)” audit and the audit opinion will include information on the procedures performed on both certified information and non-certified information.

ERISA section 103(a)(3)(C)

Plans sponsors who elect to have an “ERISA section 103(a)(3)(C)” audit will have additional responsibilities under the EBP SAS (in accordance with their fiduciary duties). Specifically, they will need to:

  • Assess whether the entity issuing the certification is a qualified institution;
  • Ensure that the certification meets ERISA requirements;
  • Gain an understanding as to which investments and disclosures are certified; and
  • Acknowledge, in writing, that the above conditions are met.

The auditor’s opinion for an “ERISA section 103(a)(3)(C)” audit will also have a new format:

First paragraph: Scope and Nature of the ERISA Section 103(a)(3)(C) Audit

This section will acknowledge that management has elected to have an audit performed in accordance with ERISA Section 103(a)(3)(C) of ERISA and will describe this type of audit.

Second paragraph: Opinion

This section will contain a two-part opinion addressing whether the amounts and disclosures in the ERISA plan financial statements that are not covered by the certification are presented fairly in accordance with the applicable financial reporting framework, and whether the investment information in the ERISA plan financial statements related to the certified investment information agrees to or is derived from the certified investment information provided by a qualified institution.

Third paragraph: Basis for Opinion

This section will include a statement that the auditor is required to be independent and to meet ethical responsibilities.

Other paragraphs (below Basis for Opinion)

These sections will include going concern reporting (if applicable), an expanded description of management’s responsibilities, an expanded description of the auditor’s responsibilities, and the required other-matter paragraph to report on the ERISA-required supplemental schedules.

In addition to the above changes to the auditor’s report, there will also be revisions to the audit engagement letter and representation letter, as well as new inquiries and procedures surrounding the plan sponsor’s evaluation of the certification statement provided by the plan’s custodian or trustee. Finally, the plan’s auditor will be expanding their communications of reportable findings to management and those charged with the plan’s governance.

Please contact us if you have questions about the information outlined above, our seasoned and experienced employee benefit plan professionals are here to help. You can also learn more about our Employee Benefit Plan Audit  services by visiting our website.

About the Author

Steph Kramer

Steph joined McKonly & Asbury in 2016 and is currently a Manager in the firm’s Audit & Assurance Segment. Steph audits a broad spectrum of employee benefit plans, including 401(k), 403(b), retirement, profit sharing, health and… Read more

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