Employee benefit plans have new audit standards ensuring plans meet reporting requirements. This new AICPA standard, issued in the summer of 2019, changes several aspects of the audit process and begins for audits in December 2020. The new audit standards take effect for benefit plan audits for periods ending after December 15, 2020. The changes include new requirements in all phases of an audit. The new audit standards focus on:
- Engagement and acceptance
- Risk assessment and response
- Communication with those charged with governance
- Performance procedures
Why Employee Benefit Plans Have New Audit Standards
Employee benefit plan (EBP) audit changes were proposed as a reaction to a study from the Department of Labor in 2015 that found 39% of benefit plan audits were deficient and 17% failed to comply with one or more audit reporting requirements. Smaller audit firms were more likely to have deficiencies in their audits due to either a lack of education or proper training on the reporting requirements. After the study, the standards board was asked to make formal updates to the current standards.
The changes require new language in the audit report for both full and limited scope audits. The new language will provide clarity regarding the management and auditor’s responsibilities. For example, the new report might clarify that maintaining the plan documents are management’s responsibility, and to ensure representation of the plan’s transactions, according to the plan’s provisions.
The new standard also replaces the previous disclaimer opinion for limited scope audits. The audit report will have a two-pronged opinion. The two-pronged approach will force auditors to offer two opinions. The first opinion is whether the information not covered by certification is presented fairly. The second opinion is whether the certified investment information in the financial statements agrees or is derived from the certification. These limited scope audits are now an “ERISA section 103(a)(3)(C) audit.”
The new standard requires auditors to get a completed Form 5500 to determine consistency with the audited ERISA plan financial statements.
The new standard requires auditors to design appropriate audit procedures depending on the circumstances. Specifically, tailored audit procedures are based on the plan’s provisions, which require a review of the plan’s provisions.
How DHJJ Can Help
These new standards should not significantly increase the extent and nature of the audit procedures performed on your employee benefit plan audit. Audits with DHJJ will continue to benefit from individually designed audit procedures based on plan provisions and Form 5500, ensuring consistent financial statements. Click here to read more about our Employee Benefit Plan process.
If you have questions on the changes to your 401(k) audit or need a 401(k) in the future, please contact DHJJ with the form below or give us a call, 630-420-1360.