Print Friendly Version Print Friendly Version

The Audit Formerly Known As “Limited Scope”

“My plan clients are asking questions about changes to what used to be called the “limited scope audit” for Forms 5500 that take effect for the 2021 plan year filings. Can you summarize the changes?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business. A recent call with a financial advisor from Pennsylvania is representative of a common inquiry related to the report performed by an independent qualified public accountant (the auditor) that accompanies certain Form 5500 filings.

Highlights of the Discussion
The limited scope audit related to Form 5500 filings is now more involved and has a new name: the ERISA Sec.103(a)(3)(C) audit. From a plan sponsor’s perspective, the changes do not affect anything in ERISA. Therefore, a sponsor’s ability to elect such an audit continues. The new rules change what is expected of the plan auditor, starting with the 2021 filing year in most cases.

Under the old rules, a limited scope audit permitted plan sponsors to elect to have the plan auditor exclude certain investment information from his or her review that pertained to investments held and certified by qualified institutions. In 2019, the American Institute of Certified Public Accountants’ (AICPA) Auditing Standards Board issued two new auditing standards related to the financial statements of employee benefit plans and transparency in annual reports:

1. Statement on Auditing Standards(SAS) No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA; and
2. Statement on Auditing Standards (SAS) No. 137, The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports.

SAS 136 creates a new section in the AICPA Professional Standards, and deals with the auditor’s responsibility to form an opinion and report on the audit of financial statements of ERISA employee benefit plans. SAS 136 takes effect for audits of ERISA plan financial statements for periods ending on or after December 15, 2020. SAS 137 enhances transparency in reporting related to the auditor’s responsibilities for nonfinancial statement information included in annual reports.

SAS 136 will affect limited-scope audits beginning with the 2021 filing by

1. Referring to such audits as ERISA Sec.103(a)(3)(C) audits;
2. Clarifying what is expected of the auditor, including specific procedures when performing the audit; and
3. Establishing a new form of report that provides greater transparency about the scope and nature of the audit, and describes the procedures performed on the certified investment information.

For a summary of the SAS 136 changes to Form 5500 reporting, please refer to AICPA’s At A Glance: New Auditing Standard for Employee Benefit Plans.

Conclusion
Limited scope audits associated with IRS Form 5500s have a new name and scope because of changes that are effective starting with the 2021 filing year in most cases. A plan sponsor’s ability to elect such an audit continues. The new rules change what is expected of the plan auditor. Make sure the plan has an experienced auditor who is keenly aware of the new expectations.

© Copyright 2022 Retirement Learning Center, all rights reserved