Plan Sponsors: What does the new Employee Benefit Plan Auditing
Standard mean to you?
By Nancy L. Cox, CPA, Partner
In July 2019, the AICPA Auditing Standards Board (ASB) issued
AICPA Statement on Auditing Standards No. 136,
Forming an Opinion and Reporting on Financial Statements of
Employee Benefit Plans Subject to ERISA
This new standard prescribes certain new performance requirements for ERISA
plan financial statement audits and changes the form and content of the
related auditor’s report. The intent is to improve audit quality and
enhance the communicative value and transparency of the auditor’s report.
Also, to address diversity in practice and the work performed in an ERISA
Why the new standard?
Long story short, the Department of Labor (DOL) performs audits of
independent accounting firms and the employee benefit plan audits they
perform. Through these audits, the DOL has found that audit quality has
been declining. In response, the ASB determined that new standards were
warranted in order to address the issue of audit quality, specifically as
it relates to what is currently known as a "limited scope audit".
Sure, it is going to be a significant change for auditors, but what does it
mean for you, the Plan Sponsor? First things first, you have time. The new standard is effective for
December 31, 2020 year-ends (if your plan has a 12/31 year-end), and early
adoption is not permitted. Some items to note as it relates to plan
sponsors are as follows:
For all employee benefit plan audits, plan sponsors will need to:
· Maintain a fully executed, updated plan document (and related
· Be able to represent that the plan's transactions are in conformity with
· Maintain sufficient records for each participant to determine benefits
For limited scope audits, plan sponsors will need to:
· Review the investment certification to determine that the investment
information is prepared and certified by a qualified institution (in
accordance with 29 CFR 2520-10 3-8).
· Determine that the certification covers both the completeness and
accuracy of the investment information provided.
· Ensure the certification covers all plan investments (and that the
institution is capable of certifying all plan investments).
Planning considerations for plan sponsors:
· Review the plan document and amendments to ensure they are all fully
executed and complete.
· Read the plan provisions and ensure that they are consistent with the
o Important Note! While the Summary Plan Description is a helpful document
to understand plan provisions, it is NOT a legal document. You need to
review the Adoption Agreement and/or Plan Document for this exercise.
o Pay specific attention to the areas where errors are commonly found under
§ Definition of plan compensation
§ Eligibility, specifically as it relates to service requirements and
· Review controls surrounding participant records.
o Are participant records up to date? Are current addresses on file?
o Are there controls in place to identify required minimum distributions
and when they should begin?
Obtain and review the current certification.
Meet with plan auditor and service provider to:
o Discuss the certification and determine what assets are certified
o Ensure that the institution is a qualified institution
The standard may have a huge impact on the type and amount of information
your auditor asks for. Meet with your auditor well in advance of December
31, 2020 to ensure you are maintaining the records they will need to
review. Proper planning will ensure a smooth transition to complying with
the new standard.