Auditing standards board releases exposure draft for benefit plan audits

The AICPA’s Auditing Standards Board (ASB) on April 20, 2017, released Proposed Statement on Auditing Standards: Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, for audits of employee benefit plans that have to comply with the Employee Retirement Income Security Act of 1974 (ERISA).

The ASB wants comments submitted by Aug. 21. If the ASB finalizes the amendments later this year or early in 2018, the board expects to have them become effective for financial statements for periods that end on or after Dec. 15, 2018.

The proposed guidance is intended to replace AU-C Section 700, “Forming an Opinion and Reporting on Financial Statements,” and paragraph 0.09 of AU-C Section 725, “Supplementary Information in Relation to the Financial Statements as a Whole,” formerly AU Section 551, as they apply to audits of benefit plan financial statements.

The proposal addresses the auditor’s responsibility for issuing a report on a benefit plan’s financial statements. According to the proposed guidance, the report should discuss the limits a plan’s executives or administrator may have imposed on the auditor. Section 103(a)(3)(C) of ERISA lets management or an administrator exclude assets held by a bank, trust company, or insurer from the audit, and the Department of Labor, as it studied benefit plans and the quality of their financial reporting, found that many plan beneficiaries do not understand the financial statements or the limits imposed on examinations by external auditors.

The proposal says an auditor’s report on a benefit plan should differentiate between the financial information examined in the audit and the information excluded from it in a section titled the “Basis for Limitation on the Scope of the Audit.” The section should explain how the auditor reviewed the financial statements and the information management supplied to explain the financial information outside the audit’s scope.

According to the Labor Department, Congress excluded benefit plan assets held by banks and insurers from the audits of ERISA plans because it was assumed that the assets held in custody were already being audited. But the Labor Department concluded that the retirement industry had changed so much since the 1970s, that the assumptions underlying the limitations imposed on ERISA audits were no longer applicable.

The AICPA says in its introduction to the ERISA Plan Audit Proposal that the Labor Department’s chief accountant asked the ASB to reexamine the auditor’s reports for ERISA plans and focus on the scope limitation issue. The ASB formed a task force in January 2015 to begin drafting the new reporting model for ERISA plan audit reports.

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