Peer Review Conference Takeaways Part No 2: Audits of employee benefit plans
September 20, 2022 | Faye Hayhurst, CPA
Editor’s note: Read Part No. 1: New standards
The AICPA’s Peer Review Program Conference last month had optional half-day workshops related to audits of employee benefit plans (EBP) and engagements under Government Auditing Standards. I attended not as an auditor but as the CPA on staff for the peer review program administered by the MNCPA. This year more than ever, I have an appreciation for the CPAs who perform these types of engagements. This post will share some highlights from the EBP session.
The world of employee benefit plan (EBP) audits has changed (almost) completely, given that for many years, the vast majority of EBP audits have been of the type described as limited scope.
SAS 136 was the huge new standard related to EBP audits. It was amended by SAS 138 and SAS 141; AU-C 703 incorporates all and is the better reference point. Unless adopted early, the standard is effective for audits of plans ending on or after Dec. 15, 2021.
Key wording changes: “Limited scope” audits are out. “ERISA Section 103(a)(3)(C)” audits are in. “Full scope” audits are out. “Non-Section 103(a)(3)(C)” audits are in. (Creating a keyboard shortcut to type that might be advisable.) The change in terminology means that either way, an audit is performed, and an opinion issued; there is no longer a disclaimer of opinion due to scope limitation.
The new language should show up not only in the audit report but also in the engagement letter and the representation letter — all should tie together. Peer reviewers will look for this.
The audit report has changed substantially. Do not start from the prior year report as a template. There are two options for reports in the transition year, when one year is reported under the new standard and the prior year under the old standard: a stacked opinion or an “other matters” paragraph related to the prior year limited scope audit. If the prior year is not correctly reported in the transition year, this would typically result in a nonconforming engagement.
“Reportable findings” is new under SAS 136 and must be communicated in writing to those charged with governance of the plan on a timely basis. They don’t have to be in a separate letter but could be included in the general governance letter. What exactly should rise to the level of a reportable finding is still unclear, but auditors should use caution in deciding an instance of plan noncompliance is inconsequential and doesn’t need to be reported. It may be advisable to establish an understanding with those charged with governance as much as possible about expectations for what would be considered a reportable finding. And the auditor should never make an affirmative statement that there were no reportable findings.
In addition to incorrectly reporting on a prior year presented, there are other “misses” that could result in a peer reviewer determining that an EBP audit engagement was nonconforming:
- The auditor completely failed to implement the new standard (ouch!).
- The auditor didn’t use the new form of report.
- The entity issuing the certified investment information was not a qualified institution under the DOL or their certification was improper.
- Omitted procedures might indicate there was insufficient evident to support the audit opinion.
- Would a potential user of the financial statements be misled?
These are just a few of the changes brought about by the new standards affecting audits of employee benefit plans, and it may require multiple educational sessions to get up to speed. Fortunately, there are a lot of educational opportunities available, and the MNCPA is here to help. In the online catalog
, search on keyword “401(k)”.
Topics: Accounting & Auditing
Faye Hayhurst, CPA
Faye Hayhurst is the MNCPA director of finance and administration. She is committed to using numbers to tell relevant stories, although she also employs words, charts and occasionally clothing to communicate a message. While some have questioned her about the pressures of being the CPA for the MNCPA, Faye considers presenting financial information to fellow CPAs a dream job. Outside of storytelling with numbers, Faye enjoys directing her church's handbell choir, visiting national parks and other scenic places, and checking out the chocolate products at Trader Joe's. Faye can be reached at 952-885-5540 or email@example.com.
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