Prior to the Statement on Auditing Standards (SAS) No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, reportable findings from audit procedures may have been communicated verbally or in a separate report discussing internal control related matters. Not anymore.
The Statement on Auditing Standards (SAS) No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, requires auditors to communicate in writing reportable findings from audit procedures to management or those charged with governance on a timely basis.
The SAS-136-required written communication should include the following:
SAS 136 defines reportable findings as matters that include one or more of the following:
SAS 136 does not provide examples of “reportable findings,” but based on the criteria outlined above they could be based on the auditor’s “professional judgment” or on an instance of noncompliance. The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA), however, may offer potential examples of “reportable findings.” In 2015, EBSA issued Assessing the Quality of Employee Benefit Plan Audits, in which EBSA estimated that 39% of ERISA audit plan audits had major deficiencies. Those noted included, but are not limited to, the following:
Another resource for identifying “reportable findings” could be the EBSA’s Reporting Compliance Enforcement Manual, Chapter 4, “Office of the Chief Accountant Enforcement Programs.” The Office of the Chief Accountant conducts augmented review on the working papers prepared by plan auditors. Audit areas selected for review include the following:
Understanding EBSA-identified deficiencies and the areas of focus on augmented workpaper reviews highlight the areas that are more prone to reportable findings than others. Below are some matters an auditor should evaluate when considering if they have any reportable findings:
As part of the written communication of reportable findings, the auditor may want to identify the underlying cause of the finding, how to remediate the finding, and what changes need to be implemented to policies and procedures to prevent the situation from reoccurring.
SAS 136 states that reportable findings should be included within the required communication with those charged with governance, either in a separate section or placed in such communication as the auditor deems appropriate. Communication with those charged with governance may be combined in a single written communication covering all reporting matters. If the auditor does not identify any reportable findings, the auditor is prohibited from issuing a written communication stating that no reportable findings were identified during the audit.
SAS 136 is effective for audits of ERISA plan financial statements for periods ending on or after Dec. 15, 2021. This means most plan sponsors will see the impact of the new standard for their 2021 year-end audits completed in 2022.
The original article appeared in the Pennsylvania CPA Journal.
Richard Fischer, CPA, CGMA, is managing director of assurance services at O’Connor, Pagano and Associates in Pittsburgh. He has more than 32 years of experience in audits, reviews, compilations, and internal control engagements in the public, private, non-profit and governmental sectors.
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