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10.07.21

Audit Communications to Plan Sponsors More Robust Under SAS 136
Stephanie M. Zaleski-Braatz

The AICPA’s Statement on Accounting Standards No. 136 (SAS 136), “Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA (Employee Retirement Income Security Act of 1974), will meaningfully change the audit process for defined contribution plan sponsors. The AICPA issued SAS 136 with the goal of giving readers of the audit report a better understanding of the scope of the audit, as well as clarifying the responsibilities of the plan sponsor and auditor. SAS 136 requires a greater level of written communication to those charged with governance.

Plan sponsors should expect more communication from auditors throughout the audit process. Proactive planning can help ensure there are no surprises at the end of the audit. These changes will be effective for periods ending on or after December 15, 2021, although some firms have already chosen to adopt this standard.

Related Read: How To Prepare for a Plan Audit

Background on SAS 136

The Department of Labor (DOL) has increased its focus on the quality of retirement plan audits over the past decade. In 2015, the DOL’s Employee Benefits Security Administration (EBSA) conducted a study of 400 audits on plans subject to the 1974 Employee Retirement Income Security Act (ERISA). The study found that nearly four out of ten audits contained major deficiencies, leading to rejected Form 5500s. The AICPA, working in consultation with the EBSA, issued SAS 136 to improve the consistency and transparency of audits, as well as to expand the level of communication between auditors and their clients:

  1. SAS 136 clarifies the responsibilities of management and the plan auditors in the auditor’s report, engagement letter and other required communications.
  2. SAS 136 also eliminates the limited scope audit and replaces it with an ERISA Section 103(a)(3)(C) audit.

Required Communication for Reportable Findings

One major change under SAS 136 is the requirement for auditors to communicate “reportable findings” to those charged with plan governance. SAS 136 takes concepts from three clarified auditing standards (AU-Cs) as the basis for determining a reportable finding. While some of these communications were previously handled verbally, all are now required to be provided in writing:

  • AU-C 250: Non-compliance (or suspected non-compliance) with laws and/or regulations;
  • AU-C 260: Certain findings that the auditor believes are significant and relevant to those charged with governance; and
  • AU-C 265: Deficiencies in internal controls found during the audit that the auditor finds merit management’s attention.

Under SAS 136’s AU-C 250, non-compliance with laws and regulations is not a gray area and is always considered a reportable finding. For issues covered by AU-C 260 and AU-C 265, consideration of the auditor’s professional judgment in determining what is a reportable finding is necessary. This means that all audit findings and controls deficiencies are not necessarily a reportable finding; it is dependent on the facts and circumstances of the audit and plan.

How Plan Sponsors Can Prepare for Audits Under SAS 136

Plan sponsors should have discussions with their auditors to learn about the updated responsibilities under SAS 136. Before the audit commences, plan sponsors and their auditors should collaborate to define issues of importance (above the minimum auditing standard).

In addition, plan sponsors and their auditors should agree on the extent of interaction during the audit process to discuss audit results and get real-time updates on findings. Doing this kind of planning before the process starts will alleviate surprises. Beyond the benefits to auditors, these planned meetings may aid plan sponsors in identifying common issues that need to be addressed.

Insight: Increase Your Engagement in the Audit Process

SAS 136 has many new requirements that are intended to increase the transparency of audit reports as well as the plan sponsors’ involvement in the audit process. The goal is to yield a higher quality audit and ultimately, a stronger, better-managed plan. But these positive outcomes will not occur unless plan sponsors and auditors communicate to ensure that everyone understands the objectives of the audit and the roles and responsibilities of the auditor.

For more information, contact Stephanie Zaleski-Braatz at szaleski@orba.com or 312.670.7444.  Visit ORBA.com to learn more about our Employee Benefit Plans Services.

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