The status of SAS 136
Effective date delayed one year
Natalie Rosin Wobbema, CPA, ABV, principal, Boeckermann, Grafstrom & Mayer LLC | August 2020 Footnote
Editor's note: Updated July 28, 2020
In April, the AICPA Auditing Standards Board (ASB) delayed the effective dates of Statements on Auditing Standards (SASs) No. 134–140 to provide relief to audit firms amid the challenges created by the coronavirus pandemic. The standards are primarily related to substantial changes to the auditor’s report.
The standards now will take effect for audits of financial statements for periods ending on or after Dec. 15, 2021, with early implementation permitted. The ASB expressed its intent that SASs No. 134–140 be implemented at the same time.
This article discusses SAS No. 136,
Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA (Employee Retirement Income Security Act of 1974). This new standard addresses an auditor’s responsibility to form an opinion on the financial statements of employee benefit plans subject to ERISA, as well as the form and content of the auditor’s report issued on the financial statements of an ERISA plan. ERISA plans include 401(k), 403(b), defined benefit, and health and welfare plans. It should not be adapted for plans that are not subject to ERISA.
What to expect
The biggest change for auditors after the effective date is that audits previously referred to as “limited scope” audits will now be referred to as “ERISA section 103(a)(3)(C) audits.” The audits will no longer be considered to have a scope limitation when the investments are certified by a qualified institution. ERISA section 103(a)(3)(C) audits are considered unique to employee benefit plans and auditors will no longer issue a modified opinion. Instead, the opinion section of the audit report will have two parts: It will provide an opinion on whether the information not covered by the certification is presented fairly, and an opinion on whether the certified investment information in the financial statements agrees to or is derived from the certification.
Another significant change to the auditor’s report specifically for ERISA engagements is included in the management’s responsibility section of the report. Because management has specific responsibilities related to an employee benefit plan that are not similar to other industries, the report expands the description. Management responsibilities include maintaining a current plan instrument, administering the plan, and determining that the plan’s transactions are presented and disclosed in the financial statements in conformity with the plan’s provisions, including maintaining sufficient records with respect to each of the participants.
Other changes to the auditor’s report align with the requirements of SAS No. 134. Illustrative examples of auditor’s reports for employee benefit plans are included in the SAS and cover various circumstances, including situations when prior period financial statements were audited by a predecessor auditor or not audited at all.
Other highlights
Besides the auditor’s report, SAS No. 136 also has new requirements in all phases of an audit of ERISA plan financial statements. The SAS specifically address requirements for engagement acceptance, audit risk assessment and response, including the auditor’s consideration of relevant plan provisions, communications of reportable findings with those charged with governance, auditor’s responsibilities relating to the ERISA-required supplemental schedules and the Form 5500.
The following are some of the highlights of some of the specific requirements:
- As part of engagement acceptance, the auditor is required to obtain agreement of management that it acknowledges and understands its responsibilities for maintaining the current plan instrument, administering the plan and determining whether ERISA Section 103(a)(3)(C) audit is permissible.
- As part of the risk assessment process, the auditor needs to consider the plan provisions and whether to test specific plan provisions.
- The auditor is required to evaluate whether prohibited transactions identified by management or as part of the audit have been appropriately reported in the applicable ERISA-required supplemental schedules.
- Management is required to provide the auditor with a draft of the Form 5500 prior to the date of the auditor’s report so that the auditor may review it for items that may be materially inconsistent with the audited ERISA plan financial statements.
- The standard defines reportable findings and requires them to be communicated in writing.
For auditors performing audits of employee benefit plan financial statements, the delay allows more time to examine their auditing practices and make adjustments to implement the new requirements. The standard requires many procedures when planning and performing the audit that were not expressly required in the past.
Natalie Rosin Wobbema, CPA is a principal with Boeckermann Grafstrom & Mayer, LLC. An MNCPA member, Natalie has served on the MNCPA Employee Benefit Plans Financial Statement Review Task Force since 2010. You may reach her at nwobbema@bgm-cpa.com.
Need more SAS info?
www.mncpa.org/SAS134-135
Statements on Auditing Standards (SAS) No. 134–140 have been delayed to help provide relief during the COVID-19 pandemic. Read more specifics about how this effects SAS 134 and SAS 135.
