United States: Significant Changes Are Proposed For Benefit Plan Audits

Last Updated: June 15 2017
Article by Melinda Irish

Financial statement auditing authorities recently issued significant proposed changes to audits of employee benefit plans. The changes result from a collaborative effort by the Department of Labor (DOL) and Auditing Standards Board (ASB), responding to weaknesses found in a number of benefit plan audits. The proposed changes primarily focus on expanded reporting and disclosures. The proposals tentatively are scheduled to first impact financial statements for periods ending on or after December 15, 2018, and promise increased duties for both auditors and sponsors of benefit plans.

The problem

Two years ago, the DOL issued a report following its assessment of the quality of 400 benefit plan audits performed by more than 200 CPA firms. In an event co-sponsored by BNN, we and our guests had the opportunity to hear Mary Rosen, an associate regional director in the Employee Benefits Security Administration of the DOL, elaborate on the results first-hand. Nearly 39% of the reviewed audits had a deficiency, and the number of deficiencies increased dramatically for those auditors who perform fewer than 24 plan audits per year. Four of 10 audits failed to meet professional standards, which put potentially $653 billion in plan assets and 22.5 million participants at risk.

Summary of the proposed solution

The ASB is an authoritative committee established by the American Institute of Certified Public Accountants (AICPA) to design auditing standards to which all CPAs must adhere. In April 2017, the ASB issued a proposed Statement on Auditing Standards (SAS) to address the DOL findings. Rarely accused of brevity, the SAS is entitled Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA.

The proposed SAS calls for a number of changes that will apply, primarily whenever management imposes an ERISA-permitted scope limitation.

Note: The concept of a scope limitation is critical to understanding the proposed SAS. ERISA rules have long permitted a scope limitation in certain instances whereby management may legitimately direct auditors to forgo testing in certain areas, if those areas have been certified by a qualified third party. The most common example involves a benefit plan's custodian certifying the holdings of a plan, including number of shares and value of investments held, allowing CPA auditors to skip those steps. Auditors do, however, test allocations of assets to participants' accounts, vesting, and matching, etc. The CPA's scope is limited in that they would not re-test what the custodian already certified. Scope limitations are requested by management to save time and money and avoid redundancy.

Key elements of the SAS proposal include:

  • Additional testing of certain provisions of the plan document; and new disclosures in the auditor's report, describing the procedures and results
  • Changes to the form and substance of the auditor's report for limited scope audits
  • Expanded written representations management will need to provide to auditors
  • Considerations for the Form 5500 filing

Details and discussion of the proposed solution

Additional audit steps will be needed to address compliance with a number of provisions stipulated in the plan document, including but not limited to eligibility to participate in the plan, calculation of participant contributions, and payments made from plan assets. This requirement will expand the time incurred to complete many audits, and translate into increased fees.

The proposed SAS will also require auditors to verify that certifying parties are authorized and in a position to be able to issue their certification. The report must note that management is responsible for determining whether the audit scope limitation is permissible.

Many auditors already are performing procedures in areas outlined in the proposal. However, they may not be meeting the level of testing required by the proposed standards. Under current standards, auditors apply the concept of materiality by considering the risk profile of the plan and determining the related risk of material misstatement to the financial statements. The proposed SAS would remove this ability because the ASB chose specific provisions to be tested based on DOL predetermined quality issues. This change would require that auditors, even if it appears likely that time will be devoted to testing immaterial matters, must test these defined provisions and report on the results.

The task force determined that the auditor's report should better explain the auditor's responsibilities during an audit engagement. Therefore the proposed changes to reports would now include disclosures regarding internal control over financial reporting and compliance with certain provisions of the law, regulations, contracts and the plan document.

Certain members of management and those charged with the governance of EBPs are already subject to several representations. This proposal will expand the scope of these representations. The proposed SAS will require additional written representations acknowledging management's responsibility for (a) determining whether a limitation on the scope of the audit is permissible and in accordance with ERISA; (b) evaluating whether the certification is prepared by a qualified institution; (c) evaluating whether the certified information is complete and accurate; and (d) determining whether the certified investment information is appropriately measured, presented, and disclosed.

The proposed SAS includes changes to the form of the audit report specific to audits of ERISA plans for which management imposes ERISA-permitted scope limitations. Currently, the audit report includes a disclaimer of opinion on the financial statements and an other-matter paragraph with an opinion on whether the form and content of the information included in the financial statements and supplemental schedules, other than that derived from the certified information, are presented in compliance with the DOL's rules and regulations for reporting and disclosure under ERISA. The proposed SAS adds a new Basis for Limitation on the Scope of the Audit section and an expanded section discussing management and auditor responsibilities. It also creates a new form of opinion on scope-limited plans, and calls for a by-product report outlining findings on specific plan provisions relating to the financial statements.

The problems with the solution

While ASB's intentions are focused on improving the value and relevance of the auditor's report, the reality is that auditors and sponsors will be required to disclose a significant amount of new information not currently required in benefit plan audit reports – and the added verbiage and efforts associated with producing it may not necessarily reduce deficiencies. That information includes compliance findings (such as weaknesses) unless the auditor can conclude they are "clearly inconsequential." Because the auditor's report is attached to the plan's Form 5500 filing (which is public record), there will be increased visibility of findings that historically have been limited to management or others in a position of oversight. Audit reports generally are intended for a specific audience of relatively sophisticated financial statement readers, and disclosed deficiencies easily could be taken out of context by casual readers or individuals not familiar with the plan or the sponsor. We are hard pressed to identify other situations where private companies are required to disclose deficiencies in internal control, or similar matters, to the general public.

By removing the concept of materiality from some of the testing, the proposal will require time to be spent (and fees to be incurred) on inconsequential matters. While a clear discussion of delineation of duties between management, auditors, and certifying parties is useful, it is unclear whether the proposed level of increased representations is needed.

There are some valuable enhancements offered by the proposed SAS, and with deficiencies having been found in 39% of audits reviewed by the DOL, something needs to change. However, most of the proposed changes focus on increased information being offered to readers, including explanations regarding who was responsible for what, and what their justification was for doing what they did. Perhaps more attention should be focused on another finding in the DOL report – that most of the deficient audits were conducted by auditors with limited annual employee benefit plan audit experience. Crafting the steps required to form an opinion on financial statements requires familiarity with the types of entities (or plans) being audited, and benefit plans are an incredibly unique subset. A very proficient auditor of a manufacturing entity might not necessarily be qualified to audit that manufacturer's benefit plans – not without specific training and skill. As is the case with most aspects of life, nothing can top experience. Well-informed and attentive plan sponsors undoubtedly make a difference too, and an astute auditor will design an audit that considers the strengths and/or weaknesses of the professionals involved with the plan.

The proposed SAS seems to assume auditors' competency levels will remain the same, and imposes additional steps and significant disclosures designed to accommodate them.  In our opinion, a "one size fits all" approach nearly always contains unnecessary components, and this appears poised to be time-consuming for its auditors, expensive for the plan, confusing to many of its readers, and unnecessary in cases where deficiencies did not exist. Benefit plan audits simply should be conducted by auditors who specialize in such audits, and this proposal could be better designed to achieve that goal.


The proposed SAS includes a number of "Issues for Consideration." These are specific elements of the SAS identified by the ASB for which they are seeking feedback. As you ponder these issues, it is important to also consider how these changes will translate to increased quality of EBP audits.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Akin Gump Strauss Hauer & Feld LLP
Morrison & Foerster LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Akin Gump Strauss Hauer & Feld LLP
Morrison & Foerster LLP
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions