What is ERISA Section 103(a)(3)(C) and how will it affect the audit of your employee benefit plan?

Hughes, Snell and Co., PA

In July 2019, the Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA) issued Statement on Auditing Standards (SAS) No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA (SAS 136).  SAS 136 made changes that affect the audits of employee benefit plans one of which was the creation of ERISA Section 103(a)(3)(C).

Prior to SAS 136 the plan administrator, as defined in the plan document, could instruct the plan auditor to perform a limited scope audit and not perform any auditing procedures with respect to investment information with a properly prepared investment certification thereby allowing the auditor to issue a disclaimer of opinion.  Under SAS 136, auditors will no longer disclaim an opinion but issue an opinion on whether the information not covered by an investment certification is fairly presented in all material respects and whether the investment information is derived from or agrees with the certification.

SAS 136 also requires increased responsibilities on the auditor and the plan administrator.  The auditor is required to inquire about how plan management determined that the entity was qualified to certify the investments.  The auditor is also required to receive a copy of the certification and compare the certified investment information with related information presented and disclosed in the financial statements along with any required supplemental schedules.

The Plan Administrator is responsible for requesting an audit under ERISA Section 103(a)(3)(C) and for determining that the investment certification is proper which includes a statement that the investment information is certified both complete and accurate and signed by an authorized person of the certifying entity.  The Plan Administrator is also responsible for preparing and fairly presenting the financial statements.  The Plan Administrator is also responsible to provide a substantially completed Form 5500 prior to the auditor being able to issue a report.

The effective date for implementing the effects of SAS 136 will be for audits of calendar year-end 2021 financial statements.

Our HSC team is here to assist you in determining how SAS 136 may impact your Plan audit. Please contact your HSC advisor to discuss how SAS 136 will make changes to your Plan Audit.