EBP financial statement audits could become more expensive and require additional participation from management under the proposed AU-C 703.

Employer strategies

Proposed SAS Changes Will Significantly Change Benefit Plan Audit Reporting

  • Michele Chalmers
  • 7/25/2017

On April 20, 2017, the AICPA issued proposed changes to audit standards that could significantly change the way your auditor performs its audit and reports on your employee benefit plan in the future. The exposure draft, Proposed Statement on Auditing Standards Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, proposes, among other things, expanding the auditor’s report to expand on management’s responsibilities for audits, requiring auditors to record certain audit findings in their report and include additional written representations from management.

If finalized, the proposed Statement on Auditing Standards (SAS) would be effective for audits of financial statements for periods ending on or after December 15, 2018. Because this will have a direct effect on you and your plan, we encourage you to reach out to your auditor and discuss submitting comments to the AICPA before the August 21, 2017, deadline.

39% of audits
had at least
one major

Strengthening the quality of EBP audits

The Department of Labor (DOL) has been concerned about the quality of employee benefit plan audits for a number of years. In 2014, it conducted an audit quality study in which it reviewed 400 Form 5500s and EBP audits completed by 232 public accounting firms in 2011.

Based on the study results, in May 2015, the Employee Benefit Security Administration (EBSA) of the DOL issued a report assessing the quality of employee benefit plan audits, which noted 39 percent of the audits in its study had one or more major deficiencies. As a response to this study, the DOL requested that the Auditing Standards Board (ASB) create a task force to consider a proposal to strengthen the quality of employee benefit plan audits.The chief accountant of the DOL and staff members participated in the task force to provide insights and recommendations, which were considered while drafting the proposed SAS.

Potential for increased audit fees

New performance mandates will serve as a basis for a new reporting requirement, Report on Specific Plan Provisions Relating to the Financial Statements. The procedures in this report are required irrespective of the risk of material misstatement; therefore, it is possible that this proposal would result in additional work, translating into increased audit fees.

Errors found during audit could be made public

In the new rules, there is a requirement that auditors must report certain findings either in the auditor’s opinion or a separate report. The opinion or the separate report is required to be attached to the Form 5500, which is accessible via an online database, giving the public — including regulators and plan participants — the ability to view audit findings.

Additional requirements may affect plan sponsors

Plan sponsors will need to provide representation that they understand their responsibility for maintaining a plan instrument, including all plan amendments, administering the plan, determining that the plan’s transactions are presented and disclosed in conformity with plan provisions, and maintaining sufficient records with respect to each of the participants in accordance with ERISA Section 107 and 209.

If scope limitations are requested, management is required to determine whether the limitation of the scope is permissible in accordance with Employee Retirement Income Security Act of 1974 (ERISA), as amended. Management is also required to confirm that the certification is prepared by a qualified institution and is complete and accurate, and that the certified information is appropriately measured, presented, and disclosed in the financial statements.

Extra requirements for auditors

Auditor procedures related to the Form 5500 filing, which the auditor report is attached to, are to provide additional consideration relating to an auditor’s responsibility to review the Form 5500 prior to the report release date, and how to address material inconsistencies between the financial statements and Form 5500.

Auditors will be required to include emphasis of matter paragraphs if the plan has a significant amendment, if minimum funding waivers were granted by the IRS or if a request is pending, and if there was a significant change in the nature of the plan, including a plan merger or spin off. There will also be additional engagement acceptance requirements in addition to the current standards.

How we can help

CLA goes beyond providing audits of your plan’s financial statements — we can help you understand these proposed SAS changes to help you identify how they may affect your organization. We encourage you to talk with your auditor about the potential impacts of these changes and submit comments to the ACIPA before the August 21, 2017, deadline.