Changed Requirements for Auditor Reporting and Performance on ERISA Plan Financial Statements
The Statement on Auditing Standards No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, was issued in July 2019. It is codified under AU-C Section 703 in the AICPA Professional Standards.
The standard addresses the auditor’s responsibility to form an opinion on the financial statements of employee benefit plans subject to the Employee Retirement Income Security Act of 1974 (ERISA), as well as the form and content of the resulting auditor’s report. The new rules should not be adapted for plans that are not subject to ERISA.
ERISA plan financial statements include certain supplemental schedules required by ERISA (such as prohibited transactions). The auditor should generally report on whether the required schedules are fairly stated, in all material respects, in relation to the financial statements as a whole. Specific required elements of such reporting are detailed within the new standard. AU-C Section 725 continues to apply to accompanying supplemental information that is not subject to ERISA.
A significant change was made to the form and content of the auditor’s report when management elects to exclude from the audit certain investment information held and certified by a qualified institution, as permitted by ERISA. These engagements were formally called “limited scope” audits and are now called “ERISA Section 103(a)(3)(C)” audits. However, such audits will continue to not extend to any information related to these qualifying assets.
Other requirements were also enhanced, such as engagement acceptance, audit risk and response, communications with those charged with governance, and written management representations.
The new standard does not require the communication of key audit matters in the auditor’s report as discussed in AU-C Section 701.
The new standard is effective for relevant audits for periods ending on or after December 15, 2020. Early adoption is not permitted.