How New Accounting Standards Will Impact ERISA Audits

For many CFOs, Controllers, and others, the annual employee benefit plan audit has become part of the compliance process. The time, energy and effort spent preparing for the audit, managing inquiries, and documentation requests as well as reviewing the final auditor’s report has become a normal part of the compliance process. While consistency is a good thing in financial reporting, there are several changes coming to the benefit plan audit process. Last month the AICPA voted to approve, Statement on Auditing Standards (SAS) Forming an Opinion and Reporting on Financial Statements on Employee Benefit Plans Subject to ERISA. Since the Department of Labor (DOL) issued a 2015 report highlighting the high percentage of audit deficiencies and other identified issues in reviewed audit work, the AICPA developed the new standard to improve benefit plan audit quality. This new standard will affect several areas of the plan audit and includes multiple provisions that will impact plan management. To help clients, prospects and others understand the changes and it will affect their audit process, Wilson Lewis has provided a summary of key details below.

Key Plan Audit Changes

The changes detailed below apply to all benefit plans subject to the Employment Retirement Income Security Act (ERISA) regulations for plan audits. This includes single employer, multiple employer, and multiemployer plans.

• Additional Management Disclosures – Plan auditors will be required to obtain evidence and documentation from plan management that they understand their responsibility to maintain plan documents and that all transactions are presented and disclosed according to the rules and regulations set forth in the plan documents. It requires the same effort for plan recordkeeping and supports participants benefits.
• Limited Scope Audits – Since many of the quality issues uncovered in the 2015 DOL report came from limited scope audits, the new standard changes the name of these audits to ERISA Section 103(a)(3)(C) audits. Beyond this, there are also changes to the auditor’s report for limited scope audits expanding the auditor’s responsibility to review certified investments and other information.
• Engagement Acceptance – There are new engagement acceptance requirements that benefit plan auditors will be required to follow. Much of these changes are expected to come in the form of additional disclosures and determination from plan management.
• Risk Management – The new changes require the plan auditor to review current plan documents for the audited period. It’s essential for auditors to consider plan provisions when designing audit procedures, in particular, testing areas that have an increased risk of misstatement. It’s expected that this change will lead to additional questioning of plan sponsors and new audit procedures relating to the plan document.

New Certification Program

Along with the changes outlined above, the AICPA has also created new benefit plan auditor certification programs designed to provide auditors with additional training and continuing education on benefit plan auditing requirements. These programs benefit all participants and also ensure that audit firms with a small number of benefit plan audit clients are well trained on the latest rules and regulations. This was identified as a key area of concern in the 2015 DOL report.

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It’s clear that benefit plan auditors and plan management will soon have new regulations and requirements to follow in the plan audit process. It’s important to note that all benefit plan audits for periods ending on or after December 15, 2020, will be required to follow the new guidance as noted above. Plan sponsors are not permitted to make an early adoption. If you have questions about the new guidance and how it will impact your plan audit or need assistance with your 401k or benefit plan audit, Wilson Lewis can help. For additional information please call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.