No more limited scope audits?!
Don’t panic. “Limited scope audits” rebranded with a new name: ‘ERISA Section 103(a)(3)(c) audits’. Quite the mouthful, but trust me, you get used to it.
Statements on Auditing Standards No. 136 (“SAS 136”) became effective for audits of ERISA plan financial statements for periods ending on or after December 15, 2021. Changes were made to both management’s and the auditor’s responsibility, which include new preconditional acceptance terms, and the auditor’s responsibility to form an opinion on the financial statements including the content of their auditor’s report.
Actions required by Plan Management
These best practices were already taking place prior to SAS 136 and now we recommend this be communicated and documented by both management and auditors:
- Determine if an ERISA 103(a)(3)(c) audit is acceptable. To qualify, plans must obtain a certification letter for the plan year from either a bank (or similar institution) or a regulated, supervised insurance company subject to periodic state/federal exams, that acts as the Plan’s Custodian or Trustee. If you don’t qualify your plan will be subject to an ERISA audit (previously known as “full scope audits”), which entails more testing for investments, and possibly loans. You can reach out to your current Custodian or Trustee to obtain this information.
- Understand the certification. This includes its financial reporting, which specific investments it covers (and loans if applicable), and understanding how investments are valued (i.e. fair value or contract value).
- Acknowledgement that auditors must review a substantially complete Form 5500 prior to filing
- Maintain current plan documents and participant records and administer the plan under current plan provisions
Actions required by Auditors
Auditors must ensure all the above have been met to satisfy SAS 136’s new engagement acceptance preconditions. SAS 136 also clarifies some best practices for documentation and changes required for auditors as well as follows:
- Test the relevant plan provisions and documentation in your risk assessment
- Communication of reportable transactions to those charged with governance
- Changes to the audit report and management’s representation letter
So if you’ve had an audit in the past, be aware of changing reports and letters for your calendar year 2021 audits and reach out to your auditor for more information to discuss all these upcoming changes. SobelCo can assist with any of your employee benefit plan questions and needs.
