Will a New EBP Audit Proposal Enhance Quality?
Enhancing quality in various areas of the audit and various kinds of audits is a top priority for us at the AICPA. We recently issued an exposure draft entitled Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA. Its goal is to provide a report that clarifies audit procedures and the responsibilities of auditors and management, thus improving quality and transparency. The Auditing Standards Board (ASB) is encouraging auditors and preparers who are involved in audits of the financial statements of Employee Retirement Income Security Act (ERISA) plans to familiarize themselves with this proposal, and we are very interested in receiving feedback on the proposed changes. Comments should be sent to Sherry Hazel at Sherry.Hazel@aicpa-cima.com by Aug. 21.
Working with the DOL
We issued the exposure draft in response to concerns over the quality of employee benefit plan (EBP) audits, including some expressed by the United States Department of Labor (DOL). In a report released in May 2015, the DOL’s Employee Benefits Security Administration (EBSA) found that 39 percent of audits studied had one or more major deficiencies. The DOL turned to the ASB for help because regulatory requirements call for many employee benefit plan audits to comply with generally accepted auditing standards. In response, the ASB created a task force to enhance the overall quality and the end product of an EBP audit.
According to the EBSA report, 17 percent of auditors’ reports didn’t comply with one or more of ERISA's reporting and disclosure requirements. Since compliance problems are more likely for auditors who aren’t trained in ERISA audits, one of the ASB’s goals was to make auditor’s reports more specific to these plans, rather than having them fit formats that suited other industries. Both the ASB and DOL believed auditors’ reports could be more informative and transparent both about an auditor’s role and management’s responsibilities, resulting in greater quality. Here are some of the ways the exposure draft would achieve those goals.
New Form and Content Requirements
DOL rules allow EBP management to impose a limitation on the scope of an audit of an ERISA plan. These limited-scope audits enable auditors to forgo auditing certain areas (mainly investments) if they obtain certifications from a qualified institution that holds the investments. The exposure draft provides new requirements that would improve the auditor’s understanding of his or her responsibility in a limited-scope audit and enhances these audits’ quality and consistency. Among other changes to existing practice, the auditor would have to obtain additional written representations from management about their responsibilities for these audits.
The exposure draft enhances the description of both management’s and the auditor’s responsibilities to provide more transparency into such limited-scope audits, including required procedures relating to the certified investment information.
A New Report on Findings
Another key change would affect the testing of certain procedures and would create new performance requirements that serve as a basis for a new reporting requirement, Report on Specific Plan Provisions Relating to the Financial Statements. Based on information provided by the DOL, along with other feedback, the new requirement focuses on plan instrument provisions that could have a direct effect on the financial statements. Auditors would be required to perform audit procedures related to the specific plan provision without respect to the assessed risks of material misstatement. The goal would be to enhance the consistency and quality of audit procedures in this area, including related disclosures.
Other important proposals in the exposure draft include:
- Proposed audit procedures relating to Form 5500, Annual Return/Report for Employee Benefit Plans, filed by private-sector employee benefit plans.
- Enhanced engagement acceptance requirements.
- An expanded description of management’s responsibilities.
Your Comments Encouraged
The exposure draft, which would apply to audits of single employer, multiple employer and multiemployer plans subject to ERISA, includes a series of questions soliciting feedback on specific key proposals, including ones on cost benefits. The ASB is aware that the document may change practice and is eager to gather input about the effect on CPA firms, preparers and other interested parties. The ASB considers every comment. In the coming months, we will post discussions on the comments we receive on aicpa.org, as part of our meeting agenda materials. We urge you to review the exposure draft and share your comments by the Aug. 21 deadline so that you can play a part in enhancing the quality of ERISA audits.
Linda Delahanty, Senior Manager- Audit and Attest Standards, Association of International Certified Professional Accountants
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