In an effort to improve the communicative value and relevance of the auditor’s report, the American Institute of Certified Public Accountants’ Auditing Standards Board released an exposure draft last year of a proposed Statement of Auditing Standards, Forming an Opinion and Reporting on Financial Statements of Employees Benefit Plans Subject to ERISA. If formalized, the new standards will call for a whole new reporting model for audits related to Employee Retirement Income Security Act of 1974 (ERISA) plans for financial statement periods ending on or after Dec. 15, 2018.

Applying to audits of single-employer, multiple-employer and multiemployer plans, the standards require changes to be made to the form, as well as the content of the auditor’s report when management imposes a limitation on the scope of the audit. This comes on the heels of the Department of Labor (DOL) expressing concerns over the current wording related to limited scope auditor’s reports and disclaimer of opinion. The DOL believes it to a contributing factor to audit quality deficiencies due to the potential confusion regarding the auditor’s responsibilities in performing these limited scope engagements.

Changes to Expect Ahead

The new standards will come with a significantly expanded scope of information required to be disclosed in the auditor’s opinion letter for DOL limited-scope employee benefit plans audits. Aimed to address misconceptions regarding the extent of work required when a disclaimer of opinion is issued, all audit procedures performed will need to be included in the disclaimers going forward. Highlighted below are the differences between what language is expected on your credit union’s or community bank’s limited-scope ERISA plan auditor’s report now, and what you can expect to see there should the proposed standards go into effect.

Current Requirements
  • Management’s and auditor’s responsibility paragraphs.
  • A basis for disclaimer of opinion on the financial statements paragraph.
  • An other-matter paragraph discussing supplemental schedules included in the financial statements. Keep in mind, due to the disclaimer of opinion issued, no opinion is expressed on supplemental schedules.
Proposed Requirements
  • A new basis for limitations on the scope of the audit section.
  • Expanded management and auditor responsibilities sections.
  • A special form of opinion on the ERISA plan financial statements based on the audit, and on the use of the certification of the investment information the auditor was instructed not to audit. This includes audit procedures on the following:
    • Information not covered by the certification
    • Management’s obtaining of an appropriate certification provided to the auditor
    • Procedures performed on the certified information
  • An other-matter paragraph will provide 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. The opinion provided in the other-matter paragraph will be based on the audit and the use of certification of the investment information the auditor was instructed not to audit.
  • A new report on specific plan provisions relating to the financial statements section, stating the procedures performed by the auditor and any audit findings related to the procedures performed.

Additional steps will be required to take place to address compliance with a number of the provisions the new standards stipulate. Doeren Mayhew’s credit union auditors and community bank auditors stand ready to work collaboratively with you to ensure your ERISA plan will stay off the DOL’s deficiency list and remain in compliance. Contact them today!

Want to get in touch with the author? Email Kristi Long or contact her at 305.232.8272. Kristi Long is a Senior Auditor in Doeren Mayhew’s Financial Institutions Group.