United States

Proposed reporting on financial statements of plans subject to ERISA

FINANCIAL REPORTING INSIGHTS  | 

The Chief Accountant of the U.S. Department of Labor (DOL) requested the American Institute of Certified Public Accountants (AICPA) Auditing Standards Board (ASB) take a fresh look at the auditor reporting model for audits of employee benefit plans that are subject to the Employee Retirement Income Security Act of 1974 (ERISA). In 2015, the Employee Benefit Plan Reporting Task Force of the ASB was formed to consider strengthening the auditor’s report. Josephine Hammond, RSM’s National Director of Employee Benefit Plan Services and a member of the AICPA Employee Benefit Plans Expert Panel, is a member of the Task Force.

After receiving input from the DOL and the Task Force, the ASB recently issued a proposed Statement on Auditing Standards (SAS), Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, which, among other revisions, will provide more transparency regarding the scope of the responsibilities of management and the auditor when management imposes a limitation on the scope of the audit, as permitted under ERISA. If finalized, the new form of report in the proposed SAS would require:

  • A new “Basis for Limitation on the Scope of the Audit” section
  • Expanded management and auditor responsibilities sections
  • A special form of opinion on the ERISA plan financial statements that is based on the audit and on the use of the certification of the investment information that the auditor was instructed not to audit. This includes:
    • The audit procedures performed on the information not covered by the certification
    • Management’s obtaining of an appropriate certification that is provided to the auditor
    • The procedures performed on the certified information, as required by the proposed SAS
  • An “other-matter” paragraph that provides an opinion on whether the supplemental schedules are fairly stated in all material respects in relation to the financial statements as a whole, and an opinion on whether the form and content of the supplemental schedules are presented in conformity with the DOL’s rules and regulations for reporting and disclosure under ERISA

If finalized, the proposed SAS also would revise the auditor’s report issued when there is no ERISA-permitted audit scope limitation. Among other revisions, the revised report would provide more transparency regarding the responsibilities of management and the auditor, as well as revised language regarding the supplemental schedules required by ERISA. In addition, regardless of the scope of the audit, the proposed SAS would require use of certain “emphasis-of-matter” and “other-matter” paragraphs.

Further, regardless of the scope of the audit, the proposed SAS would require a by-product report of findings on specific plan provisions relating to the financial statements (either included in the auditor’s report on the ERISA plan financial statements or issued as a separate report). Therefore, the proposed SAS also includes new performance requirements that serve as a basis for this new reporting requirement. The new procedures are intended to leverage procedures performed as part of the financial statement audit. However because procedures specific to these areas would be required irrespective of the risk of material misstatement, it is possible they would result in additional audit work. In addition, this report would be included in the Form 5500 filing along with the auditor’s report on the financial statements.

If finalized, the proposed SAS would be effective for audits of financial statements for periods ending on or after December 15, 2018.

The proposed SAS is available for comment until August 21, 2017. It should be noted that the revisions in this proposed auditing standard may have significant implications for employee benefit plans, most notably because the by-product report of findings on specific plan provisions relating to the financial statements would be included in the Form 5500 filing. Therefore, plan sponsors are encouraged to discuss the proposed SAS with their auditor and legal counsel, and also consider commenting on the proposed SAS as deemed appropriate.