In April 2017, the American Institute of Certified Public Accountants (AICPA) Auditing Standards Board (ASB) issued an exposure draft introducing a new Statement on Auditing Standards (SAS). The statement details key changes to audit standards and reporting on audits of employee benefit plans under the Employee Retirement Income Security Act of 1974 (ERISA). These proposed standards not only affect CPAs performing audits of employee benefit plans, but also the plan sponsors of those plans as the audit reports issued by the plans’ auditors are posted for public inspection through the U.S. Department of Labor (DOL).
Why have these changes been proposed? For many years there has been discussion regarding how misunderstood the audit requirements are for audits of employee benefit plans under ERISA. This is especially true relating to the “limited scope” exception. This exception currently allows an auditor to disclaim an opinion related to a scope limitation if the plan sponsor requests the auditor not perform audit procedures related to investments and investment transactions when the investment information is appropriately certified to by the custodian of the assets. The limited scope exception relates only to investments and does not allow the auditor to eliminate testing in the area of participant transactions and accounts. The proposed standards are meant to clarify the procedures to be performed (regardless of the limited scope exception), and make clear in the audit report the procedures performed and opinion being given on the financial statements and on compliance with the plan’s provisions.
The proposed standards introduce new language to clarify the auditors’ responsibility related to the plan’s compliance with plan provisions. This would include audit procedures applied to participant transactions and accounts.
ERISA-Permitted Audit Scope Limitation
The proposed standard introduces a new form of auditors’ report specific to the audit of an ERISA plan when management has imposed the ERISA-permitted scope limitation. The language in the report will be clearer relating to the auditors’ responsibilities under the limited scope exception.
A report on findings has been proposed related to findings discovered as part of the audit related to the plan’s compliance with plan provisions (as outlined in the plan document).
Certain procedures will be included in the audit standards related to the audit of an employee benefit plan; specifically, procedures related to the testing of compliance with plan provisions. The proposed required procedures are not dissimilar to the procedures recommended in the current AICPA Employee Benefit Plans Audit and Accounting Guide. The proposed standards also include required procedures related to the Form 5500, client acceptance and continuance, and procedures when an ERISA-permitted audit scope limitation is imposed by plan management.
The exposure draft is open for comment through August 21, 2017. There are a number of provisions for which the AIPCA has requested feedback, including the required procedures and by-product report on findings. (should we have a link to the exposure draft?) You can access the exposure draft on the AICPA’s website by clicking here: Proposed Statement on Auditing Standards: Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA
The proposed effective date of the new SAS is for audits of plans with fiscal years ending on or after December 15, 2018.