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Are You Ready for the New Audit Standard for Your 401(k) Plan?

Published by Kim Moore on Nov 9, 2021 6:00:00 AM

If you are the Plan Sponsor of a 401(k) Plan that requires an annual audit, there is change coming for the 2021 Plan year (which you will need to be aware of for the 2022 calendar year). It is called SAS (Statements on Auditing Standards) 136 and is relates to the audit standards that will be applied to the upcoming audit of your Plan. You may be thinking that is the auditor’s problem and doesn’t impact me but that is not true. The following blog describes items you need to be aware of before we get started on the new audits under SAS 136.

  1. Is your auditor prepared?

    The first item that we recommend is to discuss the upcoming standard with your auditor. It is primarily the responsibility of the auditor to ensure they understand the new standard and what is required, but if they’re not prepared, it will impact you as Plan Sponsor and your 401(k) Plan. The auditor’s lack of understanding of the requirements could result in extra costs to you, extra time to complete the audit, and potentially re-work as they implement the new requirements. If they are not aware of the new requirements, they could conduct an audit that is not up to the new standards which, if identified by the Department of Labor, could cause the audit report to not be accepted and would require your Plan to undergo a second audit. That is everyone’s worst nightmare! It is worth a little time up front to ensure your auditor is prepared before you sign the upcoming engagement letter for the audit with them.

  2. Client Acceptance Procedures.
    new audit standard

    The new standard requires the Plan Sponsor to review the type of audit needed. Previously the audit could be completed as a limited scope (now 103A3C audit) or a full scope (now non-103A3C). The difference relates to investment and gain/loss and pricing work that needs be completed in each type of audit. The limited scope could be used if a valid asset certification was available. The general nature of this evaluation has not changed but under the new standard, the Plan Sponsor must verify the specific type of audit that should be used. For more information on this area, consult with your service provider or auditor to assist in the evaluation. The new engagement letters will refer to the completion of the evaluation.

  3. Plan Sponsor Responsibilities.

    The new audit standard and engagement letter specifies the responsibilities of the Plan Sponsor more clearly than ever before. Plan management is responsible for maintaining copies of the executed Plan Documents, ensuring documentation of all transactions is maintained, reviewing compliance with regulatory requirements, etc. This is not a new requirement, but it is called out specifically in the standard. You should make sure that you understand the requirement and are prepared to ensure you can provide all needed information. Again, we suggest you review this with your current or potential future auditor.  

  4. Going Concern. 

    If there are any concerns related to the ability of the Plan Sponsor (Company/Employer) to continue in business or for the Plan to continue (such as pending Plan termination), the auditor will need to discuss this with you and do an evaluation related to the issue. Make sure that you discuss this up front with the auditor to ensure there are no delays related to this evaluation.

  5. Form 5500.

    The new standard requires the auditor to obtain a copy of the Form 5500 and review it. They must prepare a reconciliation (if applicable) from the financial statements to the Schedule H of the 5500. They also cannot date the management representation letter and audit opinion letter until they have a “substantially complete” Form 5500. It would be a good idea to discuss the timing of receipt of this draft document with your service provider to ensure it can be provided as early as possible in the audit process. In addition, work with your auditor to request any needed changes to the 5500 as early as possible to avoid potential delays at the end of the audit which might force the filing of the Form 5500 to be after the deadline.

  6. Reportable findings.

    The new standard requires any findings that meet the “reportable finding” criteria to be provided to the Plan Sponsor in writing. We suggest discussing the process for delivery of this document early. Also, review the process of communicating issues as the audit progresses so there are no surprises in this document at the end of the process.

There are other changes that may occur related to this new standard, but we believe these to be the major changes that will impact the Plan Sponsor. Communication and early preparation are key to ensuring a successful 2021 Plan audit and timely completion and filing of your audit report and financial statements.

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If you would like to discuss Summit CPA Group’s audit process in more detail or need an audit for the first time, give me a call at (866) 497-9761. We’re here to help you navigate the world of the 401(k) audit as proficiently as possible.

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