Effective December 15, 2021, new standards apply to audits of financial statements for employee benefit plans subject to the Employee Retirement Income Security Act (ERISA). While this primarily expands what’s required of an auditor, plan sponsors have some new responsibilities as well.

Employee retirement and health plans are legally required to undergo an audit – by a qualified accountant – at a plan’s year end to help protect plan participants. The auditor inspects financial accounts and issues a report on the plan. The audit helps hold those managing and controlling a plan accountable in their fiduciary responsibilities. After a United States Department of Labor assessment showed these audits had major deficiencies, new standards were issued.

The new standards apply to “limited-scope audits,” which are now called Statement on Auditing Standards (SAS) No. 136 ERISA Section 103(a)(3)(C) audits. Under the new standards, an employee benefit plan’s annual reporting obligations are expanded. Along with Form 5500, the auditor’s report must include an opinion on financial statements, schedules, and accounting principles and practices.

To start, a plan sponsor must provide a letter confirming eligibility for a Section 103(a)(3)(c) audit and acknowledge responsibility for plan administration (including maintaining the plan document and amendments; ensuring plan transactions are consistent with plan provisions; and maintaining accurate records to determine participants’ plan benefits). The letter must state the audit is permissible; investment information was prepared by a certified bank, insurance carrier or similar institution; and the certified investment information meets the new requirements, and is appropriately measured, presented, and disclosed.

In addition, the plan sponsor must provide a substantially complete draft Form 5500 – with forms and schedules that may affect the audit — to the auditor before he/she can move ahead with the engagement.

In turn, the auditor will evaluate the plan and use a new format to report findings. The report provides more transparency by requiring more details about the auditor’s opinion and basis for that opinion, as well as financial statements and the audit of those statements. The audit must include reportable findings that include noncompliance or suspected noncompliance with applicable laws and regulations; findings relevant to those who oversee financial reporting and governance; and/or an indication of deficiencies in internal controls warranting attention. Any reportable finding must be communicated in writing to those responsible for governance so it can be addressed in a timely manner.

While they require a bit more work, the new standards are a positive for plan participants and sponsors by promoting transparency and compliance, while uncovering potential issues when they are easier to rectify.

To ensure compliance, plan sponsors should start the process earlier than usual, so they can be sure to select a qualified, experienced auditor (like RBT CPAs), and have the time to gather and complete required paperwork and forms.

Your RBT CPAs partner is ready to walk you through the new process and conduct an audit to ensure compliance with the new standards. Give us a call so we can help you get started today.

SOURCES: SHRM, RSMUS, Employee Benefit Plan Audit Quality Center (EBPAQC), Plansponsor.com