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Auditing Normal SAS 136: Elevating the Bar for Retirement Plan Sponsors Fiduciary Committees | Mintz – Employment, Labor & Advantages Viewpoints

Share this…FacebookPinterestTwitterLinkedin In July 2019, the Auditing Requirements Board of the American Institute of Licensed Public Accountants (AICPA) issued a…

By Staff , in Investments , at December 30, 2021



In July 2019, the Auditing Requirements Board of the American Institute of Licensed Public Accountants (AICPA) issued a revised Assertion on Auditing Requirements No. 136 entitled, “Forming an Opinion and Reporting on Monetary Statements of Worker Profit Plans Topic to ERISA.” Initially slated to take impact for tax intervals ending after December 15, 2020, the revised commonplace was delayed by one 12 months. Audit companies might nonetheless select to undertake the usual on the unique efficient date.

This newly revised audit commonplace is essential since tax-qualified retirement plans, amongst others, are required to submit an audit issued by an Impartial Certified Public Accountant (IQPA) with the plan’s annual report, Kind 5500. (Small plans, i.e., these with fewer than 100 individuals originally of the plan 12 months might qualify for an exemption offered sure necessities associated to the composition of the plan’s belongings are glad.) The aim of the audit is to certify that plan’s monetary statements and schedules are introduced pretty and in conformity with Typically Accepted Accounting Ideas (GAAP).

Plan sponsors, fiduciaries, and fiduciary committees are all affected by the revised guidelines in a minimum of the next 3 ways:

  • “Restricted Scope” vs. “ERISA Part 103(a)(3)(C)” – What’s in a Identify?

Below the prior guidelines, plan sponsors may elect to fee “restricted scope audits,” which excluded sure audit procedures over investments and funding revenue which can be licensed by a professional establishment as full and correct. A “certified establishment” is a financial institution, belief firm, or comparable establishment together with an insurance coverage firm that’s regulated and topic to periodic examination by a state or Federal company. Whereas the revised audit requirements proceed to permit these audits, the brand new guidelines dispense with the reference to “restricted scope” audits and as an alternative confer with “ERISA Part 103(a)(3)(C)” audits. The reference after all is the availability of ERISA that establishes the restricted scope exception to the final plan audit requirement.

In keeping with the Auditing Requirements Board, the reference to ERISA part 103(a)(3)(C) audit is extra correct, because the ERISA provision in concern shouldn’t be a scope limitation. Correctly understood, the prior audits weren’t restricted in scope; slightly they have been modified (so-called “disclaimers of opinion”) inasmuch as sure data is licensed elsewhere, i.e., by a professional establishment. The Board now takes the place that an impartial auditor performing an ERISA Part 103(a)(3)(C) audit points an ERISA-Part 103(a)(3)(C) auditor’s report that’s based mostly on the audit and on procedures adopted regarding licensed funding data.

  • New Obligations Imposed on “Administration”

For retirement plan sponsors and their fiduciary committees, what’s notable concerning the revisions to SAS 136 shouldn’t be the brand new identify. It’s slightly the brand new and complete set of written representations that should be made to the auditor in reference to the audit course of. The written representations required by the revised audit requirements embody:

  • That administration has offered the auditor with probably the most present plan instrument for the audit interval, together with all plan amendments;
  • Acknowledgement of its duty for administering the plan and figuring out that the plan’s transactions which can be introduced and disclosed within the ERISA plan monetary statements are in conformity with the plan’s provisions, together with sustaining enough data with respect to every of the individuals to find out the advantages due or which can develop into as a consequence of such individuals;
  • When administration elects to have an ERISA Part 103(a)(3)(C) audit, acknowledgement that administration’s election of the ERISA Part 103(a)(3)(C) audit doesn’t have an effect on its duty for the monetary statements and for figuring out whether or not:
    • an ERISA Part 103(a)(3)(C) audit is permissible underneath the circumstances,
    • the funding data is ready and authorized by a professional establishment as described in 29 CFR 2520.103-8,
    • the certification meets the necessities in 29 CFR 2520.103-5, and
    • the licensed funding data is appropriately measured, introduced, and disclosed in accordance with the relevant monetary reporting framework.

The auditor is required underneath the revised commonplace to request these representations for all intervals referred to within the auditor’s opinion.

With reference to who should make the required written representations, the revised commonplace provides the next steerage:

For an ERISA plan, the suitable individual or individuals with whom to speak might not be clearly identifiable from the engagement circumstances. Some plans have a proper board of trustees (or different formal governing physique), and others don’t. For a single-employer worker profit plan, the person charged with governance might embody the person with the extent of authority and duty equal to an audit committee, such because the named fiduciary, which is commonly the plan sponsor or an officer thereof; the sponsor’s board of administrators or audit committee; or a committee overseeing the actions of the worker profit plan, reminiscent of the worker advantages committee, worker profit administrative committee, worker advantages funding committee, plan administrator, or one other accountable social gathering.

ERISA vests the ability over plan upkeep and operation in a “plan administrator,” which is the board of administrators (or one other prime degree governing physique, e.g., a sole proprietor, LLC supervisor(s) by default). In lots of circumstances, the board of administrators or different governing physique will formally delegate the function of ERISA plan administrator to a number of fiduciary committees. However, to be clear, absent a correct delegation of authority the default governing physique is the ERISA plan administrator. Whereas acknowledging that the function of the plan administrator, the revised commonplace adopts and refers extra generically to “administration,” i.e.:

The plan administrator is recognized within the plan doc as having duty for managing the day-to-day administration and choices for the plan. This SAS makes use of the time period administration to incorporate the plan administrator as described within the DOL’s Guidelines and Rules for Reporting and Disclosure underneath ERISA in addition to different members of administration.

The representations required of administration underneath the revised audit symbolize a excessive bar. A few of these are extremely technical in nature and would require enter and help from inner specialists or exterior advisers. Whether or not “an ERISA Part 103(a)(3)(C) audit is permissible underneath the circumstances” is a authorized conclusion that will surely profit from sign-off by counsel (in-house or exterior). The identical is true respecting whether or not the “funding data is ready and authorized by a professional establishment” and whether or not the certification meets the necessities of the relevant Labor regulation. Curiously, whether or not “the licensed funding data is appropriately measured, introduced, and disclosed in accordance with the relevant monetary reporting framework” appears one thing that the auditor is best outfitted to reply than administration.

  • Administration Insurance policies and Procedures

Plan sponsors, retirement committees, and others vested with discretionary energy over plan administration ought to keep correct documentation of their compliance with the revised stagnated. Retirement committees might discover it essential to designate a licensed consultant who could make the required representations and attest to each its accuracy and completeness. The place there is no such thing as a fiduciary committee, it’s commonplace for a member of an entity’s administration to signal, both counting on their very own obvious authority or not giving the matter a second thought. This method might not (or mustn’t) move muster underneath the revised guidelines.

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