Proposed Statement of Auditing Standards: Redesigning the Audit Reporting Model for ERISA Plan Financial Statements

Posted by Maria Hurd, CPA

Benefit Plan Audit Changes - 401k Audit Delaware The Auditing Standards Board created a special task force in 2015 to consider a proposal to improve the quality of employee benefit plan audits by strengthening the EBP auditors’ report. The Chief Accountant of the Department of Labor requested the ASB enhance the ERISA plan audit report to provide better insight regarding the scope of the responsibilities of management and the auditor.

Many of the DOL requests could be met by implementing an audit framework similar to the one used for audits of government entities, where the auditor performs an audit in accordance with industry-specific auditing standards, and also includes a report on internal control over financial reporting and on compliance with provisions of laws, regulations, contracts, and grant agreements that have a material effect on the financial statements. Accordingly, the task force considered adapting the government audit model in creating a framework that enhances reporting for audits of ERISA plans. The task force provided various alternatives to the ASB for consideration, including reporting on internal control over financial reporting, which is management’s responsibility, and reporting on compliance with IRS and DOL rules.

In May 2015, Employee Benefits Security Administration of the DOL issued a report, Assessing the Quality of Employee Benefit Plan Audits, which reported a 39% overall deficiency rate with respect to the application of generally accepted auditing standards, and a 17% failure to comply with ERISA’s reporting and disclosure requirements.

The task force considered the DOL’s input and developed a proposed Statement of Audit Standards, in an attempt to improve audit quality through a redesigned auditor reporting model for ERISA plan financial statements that take into consideration the specialized nature of plan operations. This proposed SAS is effective for audits of ERISA plan financial statements for periods ending on or after December 15, 2018.

In addition to changing the form and content of limited scope audit reports to better explain the auditors’ responsibilities, the proposed SAS requires the auditor to report findings from procedures performed on specific plan provisions that affect the financial statements.

Reporting on Specific Plan Provisions Relating to the Financial Statements

If the auditor has findings as a result of the procedures performed, the auditor should evaluate the possible effect on the ERISA plan financial statements, individually and in the aggregate, and consider the need to modify the nature, timing, or extent of other planned audit procedures. Further, the auditor should consider whether the findings are indicative of deficiencies in internal control and include findings in the Report on Specific Plan Provisions Relating to the Financial Statements other than when those findings are clearly inconsequential.

The auditor should report the auditor’s findings relating to the specific plan provisions on the financial statement for the current period. When there are findings and the auditor’s opinion on the ERISA plan financial statements is not affected by the findings, the auditor is required to include a statement that the auditor’s opinion on the financial statements was not modified with respect to the findings. When the auditor’s opinion on the financial statements is modified, and such modification relates to the findings, the auditor is required to omit such a statement from the report on specific plan provisions. The report must include a statement that the purpose of that report is to describe the results of the auditor’s procedures relating to specific plan provisions and not to provide an opinion on compliance with such plan provisions and a statement that the Report on Specific Plan Provisions Relating to the Financial Statements is an integral part of an employee benefit plan audit performed in accordance with generally accepted auditing standards.

Separate Report on Specific Plan Provisions Relating to the Financial Statements

When reporting on specific plan provisions in a separate report the auditor should include another matter paragraph in the auditor’s report on the ERISA plan financial statements that includes:

  1. A statement that in accordance with auditing standards generally accepted in the United States of America, the auditor ha also issued a report dated [date of auditor’s report on specific plan provisions relating to the financial statements] on the auditor’s testing of specific plan provisions relating to the financial statements of [identify the plan] in connection with obtaining reasonable assurance in an audit of the plan’s financial statements.
  2. A statement that the purpose of that report is to describe the results of the auditor’s procedures relating to specific plan provisions and not to provide an opinion.
  3. A statement that the Report on Specific Plan Provisions Relating to the Financial Statements is an integral part of an employee benefit plan audit performed in accordance with generally accepted auditing.

When the auditor reports on specific plan provisions in a separate report, the report should include Exhibit A, Illustration 4 – Illustrative Separate Report on Specific Plan Provisions Relating to the Financial Statements includes an illustrative Report on Specific Plan Provisions Relating to the Financial Statements in an audit of an employee benefit plan subject to ERISA.

  • A title that includes the word independent to clearly indicate that it is the report of an independent auditor.
  • An appropriate addressee.
  • A paragraph that includes information about the audited financial statements, including:
    • that the financial statements were audited in accordance with generally accepted auditing standards and an identification of the United States of America as the country of origin of those standards (for example, auditing standards generally accepted in the United States of America or U.S. generally accepted auditing standards);
    • an identification of the financial statements subject to audit;
    • the type of auditor’s opinion expressed on the audited financial statements;
    • the date of the auditor’s report on those financial statements; and
    • a statement that the audit was conducted for the purpose of forming an opinion on the financial statements as a whole.
  • A section with the heading “Report on Specific Plan Provisions Relating to the Financial Statements” This section of the report should state:
    • as part of obtaining reasonable assurance about whether the plan’s financial statements are free from material misstatement, the auditor is required to perform certain procedures to test whether the plan and plan transactions are in accordance with specific plan provisions.
    • that the auditor performed procedures relating to [include the areas to which the procedures relate, such as procedures relating to participant eligibility, benefit payments, claim payments, participant vesting provisions, employer and employee contributions, disclosure of prohibited transactions, IRC compliance tests, participant asset allocations, use of forfeitures, recording of account activity, and allocation of expenses] for the year ended [date] as required by generally accepted auditing standards for audits of employee benefit plans subject to the Employee Retirement Income Security Act of 1974, as set forth in AU-C section 703, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA (AICPA Professional Standards). However, these procedures were not performed for the purpose of providing an opinion on compliance with those provisions, and accordingly the auditor does not express such an opinion

When there are no findings a statement that during the audit the auditor did not have any findings relating to whether the plan and plan transactions are in accordance with specific plan provisions. However, the audit was not designed to identify all instances when the plan and plan transactions are not in accordance with those specific plan provisions.

When there are findings, a statement that, during the audit the auditor noted the following findings relating to whether the plan and plan transactions are in accordance with specific plan provisions. However, the audit was not designed to identify all instances when the plan and plan

The communication of findings relating to whether the plan and plan transactions are in accordance with specific plan provisions may describe the plan provision relating to the finding and may provide more details, or an explanation, about the finding and its effect on the financial statements, if any.

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