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Audit Update: ERISA Section 103(a)(3)(C)

11/29/2021 Kerri Walz

In July 2019, the AICPA issued SAS 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA. The effective date for implementing the new SAS will be for periods ending on or after December 15, 2021, but early adoption is permitted.

Prior to SAS 136, the plan sponsor could instruct auditors not to perform certain procedures with respect to investment information certified by a qualified institution, often referred to as a “limited scope audit”. A valid investment certification allowed the auditor to issue a disclaimer of opinion.

Under SAS 136, the “limited scope audit” will now be referred to an ERISA Section 103(a)(3)(C) audit. The auditor will issue an ERISA-Section 103(a)(3)(C) auditor’s report that contains a two-pronged opinion that is based on the audit and on the procedures performed relating to the certified investment information.

There is increased responsibility for the plan sponsor, which include:

• If the plan sponsor elects an ERISA Section 103(a)(3)(C) audit they must determine whether the certification is valid. This would include a signed statement from a qualified certifying entity certifying that the investment information is both complete and accurate,
• Preparing and fairly presenting the financial statements and,
• Providing the auditor with a substantially complete draft Form 5500 before the audit is issued.

VonLehman is a member of the AICPA’s Employee Benefit Plan Audit Quality Center, which has designed a tool to assist plan management in assessing whether the conditions for an ERISA Section 103(a)(3)(C) audit have been met. Click the pdf below to view the tool.

In addition, the plan auditor is required to:

• Inquire of plan management regarding how a determination was made that the entity preparing and certifying the investment information is a qualified institution under DOL rules and regulations and,
• Receive a copy of the certification and determine if the certified investment information is appropriately measured, presented, and disclosed in the financial statements and any required supplementary schedules.
• Communicate reportable findings in writing to management and those charged with governance in a timely manner. The written communication should include a description of the reportable findings, sufficient information to enable those charged with governance and management to understand the context of the communication, and an explanation on the potential effects of the reportable findings on the financial statements or to the plan.

For more information on SAS 136, please contact ERISA specialist, Kerri Walz, at kwalz@vlcpa.com or 800.887.0437.

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