August 25, 2022
Breaking Down SAS 136 for Plan Sponsors
In December of 2021, the American Institute of Certified Public Accountants (AICPA) issued Statement on Auditing Standards (SAS) 136, which aims to increase the quality of audits that employee benefit plans subject to the Employee Retirement Income Security Act (ERISA) must undergo. This includes:
- Changes to the form and content of the auditor’s report, including when management elects to have an audit performed pursuant to ERISA Section 103(a)(3)(C)
- Conforming modifications to the engagement letter, communications to those charged with governance (audit plan and audit results), and management’s representation letter
- New audit procedures related to audit risk assessment and response
- Considerations relating to the Form 5500 filing
How Will Your Company’s EBP Audit Be Different Moving Forward?
Among the most significant changes included in SAS 136, there are three primary changes that plan sponsors will notice, as described below:
ERISA Section 103(a)(3)(C) Audits
In the past, Plan sponsors could opt for what was called a limited-scope audit, in situations where investments are held at a qualified institution, meaning that an ERISA Section 103(a)(3)(C) audit did not require the auditor to perform procedures over statements or information related to assets held for investment purposes. SAS 136 makes it so that when management elects to have auditors exclude certain investment information from their audit procedures for ERISA Section 103(a)(3)(C) audits, this no longer constitutes an audit scope limitation and eliminates the disclaimer of opinion.
SAS 136 requires auditors to communicate reportable findings in writing to those charged with governance. A reportable finding can be:
- An identified instance of noncompliance or suspected noncompliance with laws or regulations
- A finding arising from the audit that is, in the auditor’s professional judgment, significant and relevant to those charged with governance regarding their responsibility to oversee the financial reporting process
- An indication of deficiencies in internal control identified during the audit that has not been communicated to management by other parties and that, in the auditor’s professional judgment, are of sufficient importance to merit management’s attention
Common examples of reportable findings may include:
Reportable findings are required to be reported in writing, whereas previously certain similar findings may have been communicated verbally to the management team. Additionally, SAS 136 does not allow auditors to issue written communications that state no reportable findings were identified as part of the audit.
Prior to SAS 136, Form 5500 could be finalized after audit issuance. Now, Form 5500 must be substantially complete and reviewed by the auditor before the audit can be issued. Plan sponsors should begin working with Form 5500 preparers early to accommodate the new review requirements.
For a comprehensive review of the in’s and out’s of SAS 136, please refer to our white paper.
Johnson Lambert performs more than 70 employee benefit plan audits annually. As members of the Employee Benefit Plan Audit Quality Center, we are committed to providing our clients with the highest quality of service. Over the past 35 years, we have developed a niche focus to become experts in the unique aspects of employee benefit plan audits.