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Audit & Assurance

SAS 136 and Preconditions for an ERISA Section 103(a)(3)(C) Audit

The American Institute of Certified Public Accountants (AICPA) Auditing Standards Board has issued a Statement on Auditing Standards (SAS) 136, “Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA” (codified as AICPA, Professional Standards, AU-C 703), with new audit requirements for employee benefit plans. The new SAS 136 affects all components of an employee benefit plan audit subject to ERISA. The statement also makes notable changes to the form and content found in the auditors’ report.

Effective for all periods ending December 15, 2021, SAS 136 requires auditors to prepare for thorough compliance with the new requirements. This is the most significant change made to an employee benefit plan audit in almost two decades.

Although the new SAS does not affect the methodology used to create the accounting and financial reports for these benefit plans, it does alter other aspects of the auditing process, such as:

  • Engagement acceptance
  • Audit opinions
  • Audit procedures
  • Communications at the conclusion of each audit

Therefore, it is essential for auditors to thoroughly grasp the changes and the new preconditions resulting from SAS 136. Below, you can find the most critical pieces of information needed to prepare for the upcoming end-of-year employee benefit audit.

The New Preconditions of SAS 136

The AU-C 210, “Terms of Engagement,” declares that the preconditions for an employee benefit audit require management to use an acceptable framework for financial reporting. This framework is to ensure proper preparation and fair presentation of essential financial statements with management’s supervision and agreement (when applicable) of those charged with governance to the audit’s premise.

The new SAS 136 further expands on these preconditions (as noted in the AU-C 210). It states that management must acknowledge and understand its responsibilities relating to the following:

  • Maintaining a current plan instrument that includes all plan amendments.
  • Administering the plan while also determining its transactions are correctly presented and disclosed in the ERISA plan financial statements and conform with the plan’s provisions. This includes maintaining proper records for each participant to determine the benefits due or the benefits that will become due.

Additionally, when management chooses to have an ERISA Section 103(a)(3)(C) audit (formerly referred to as a limited scope audit) performed, management must verify the following:

  • The ERISA Section 103(a)(3)(C) audit is permissible under the circumstances.
  • The investment information is prepared and certified by a qualified institution in accordance with Title 29 U.S. Code of Federal Regulations (CFR) 2520.103-8.
  • The certification meets the requirements in 29 CFR 2520.103-5.
  • The certified investment information is appropriately measured, presented, and disclosed under the applicable financial reporting framework.

How to Prepare for the New Preconditions

To prepare for these new preconditions, management should consider reviewing the procedures that relate to maintaining a governing plan instrument, the administration of the plan, and decide if the plan qualifies for an ERISA Section 103(a)(3)(C) audit.

A review is helpful in identifying the need to implement any new measures or procedures that improve the existing ones and ensure compliance with SAS 136. Management should document the review and analysis of its governing plan instrument. The use of an oversight committee meeting and meetings with the plan’s ERISA attorney can streamline this process and ensure that the plan instrument is updated with the latest requirements and amendments.

This documentation should be created and updated to showcase management’s compliance with the preconditions stated in SAS 136. Moreover, before accepting an audit, it is the responsibility of the auditor to review the documentation received from the plan’s management and go over the analysis of these preconditions.

How to Check if an ERISA Section 103(a)(3)(C) Audit is Permissible

Before utilizing the services of your auditor, management should review the requirements and conclude that an ERISA Section 103(a)(3)(C) audit is permissible. To make the proper conclusion, management should work with its third-party service providers to ensure the following:

  • Is an ERISA Section 103(a)(3)(C) audit relevant in accordance with the structure and filing needs of the plan?
  • Is the investment information documented, prepared, and certified by a qualified institution or a certified agent in compliance with Department of Labor (DOL) Regulation 29 CFR 2520.103-8? (Qualified institutions include banks, insurance companies, and trust organizations that are regulated, supervised, and subject to examinations by a federal or state agency.)
  • Is the certification in written form and signed by authorized personnel? Management also needs to ensure that it confirms the accuracy and completeness of the investment information as per the DOL’s regulatory requirements of an ERISA audit.
  • Does the plan’s reporting package contain any statements with conflicting language? The management should also check for any evidence that could question the legitimacy of the investment information provided.

Let the Windes ERISA Team Help

At Windes, we understand how overwhelming and complicated it can be to handle regulations and information requirements. No matter how proficient your management is, there are numerous preconditions, changed rulings, and analysis requirements to adhere to. Therefore, Windes created an expert team that focuses only on ERISA audits.

Our team is comprised of dedicated partners, skilled managers, and staff who devote their time and efforts to ensuring optimal legitimacy and compliance of your employee benefit plan audit. We have the experience, knowledge, and expertise to work with key contacts at different service providers to facilitate your audit. With years of experience working with various industries, such as construction, hospitality, medical, manufacturing, and automotive, we are experts in our field and fully equipped to handle your company’s ERISA auditing needs.
If you have any questions related to SAS 136 or require help determining the compliance and accuracy of your investment information, the Windes team is your perfect solution. Contact us today for a smooth, convenient transition to the new preconditions required by SAS 136.

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