There's a New Audit Standard
If your company 401(k) plan has required an audit over the last few years because you have over 100 eligible participants in your plan, you may be concerned over discussions concerning a new audit standard called SAS 136. Although, if you are not an auditor or accountant, you may not know what SAS 136 is. You may have heard that the ability to conduct the audit as a limited scope is going away because of this new standard. This is only partially true.
The new audit standard requires a change in the audit opinion letter. It must more closely align the contents of the letter to the work actually performed by your auditor and the allowance provided in ERISA (the Employment Retirement Income Security Act of 1974) regarding the usage of asset certifications in the audit process.
The new standard is not effective (required) for most Plan audits that will be conducted during 2021. However, your auditor may “early adopt” which means that they will conduct the 2021 audits to the new standard. It is a good idea to check with them early in the audit process regarding this potential change.
Once the auditor adopts the new standard, there will be changes required to some procedures and the letters utilized in the process will substantially change. However, the ability for the auditor to rely upon the asset certification is still applicable under the new standard. Please view other Summit CPA blog posts regarding the new standard for more information in this area.
To ensure your audit can still be conducted utilizing an asset certification, review the following conditions:
- The entity providing the certification over the plan assets must be a qualified institution. Banks, insurance companies and trust companies, generally are qualified as they are regulated and subject to periodic examination by a state or federal agency. Securities brokerage firms are not regulated and examined periodically so they do not meet the requirements and cannot provide a valid certification.
- The certification must include the words “complete and accurate” and refer to the information that the entity is providing the certification over. In addition, it must be signed by an authorized individual of the certifying institution.
- If an asset certification can be provided, the auditor may not be required to test information such as the accuracy and completeness of the ending investment balances held by the plan. From the Plan Sponsor’s perspective, if the audit can be conducted using the asset certification, the audit fee should be lower. It is worth researching if this is an option for your plan audit.
We recommend you discuss the requirements for consideration under the new audit standard with your auditor to ensure you fully understand your requirements as a Plan Sponsor with regard to this part of the new standard.
If you would like to discuss Summit CPA Group’s audit process in more detail, or need an audit for the first time, contact our office at (866) 497-9761. We’re here to help you navigate the world of the 401(k) audit as proficient as possible. We also offer flat-fee pricing so there are no surprises on your bill when the job is complete.