Under ERISA, retirement plans and self-insured welfare plans with 100 or more participants (measured as of the beginning of the plan year) are generally required to conduct annual audits, and to include the audit reports with their annual Form 5500 filings. The American Institute of Certified Public Accountants’ (AICPA) Auditing Standards Board has proposed changes to the reporting standards for annual audits of employee benefit plans that are covered by ERISA. The proposal, which was issued in April 2017, was in response to a request from the U.S. Department of Labor to re-examine the current audit reporting model for employee benefit plans.
The most significant change in the proposal would require auditors to test a plan’s compliance with plan document provisions and with applicable laws and regulations (such as ERISA and the Internal Revenue Code), and to include such findings in the audit reports, unless the findings are “clearly inconsequential.” A plan’s audit report is attached to the plan’s annual Form 5500 filings, which are available to the public.
Although high quality auditors already perform some form of compliance testing, such testing tends to be more limited in scope than as contemplated by the proposal. In addition, unlike current audit reporting standards, this new proposal would require auditors to include their compliance findings in their audit reports (which, again, become publicly available when attached to annual Form 5500 filings). Under current standards, auditors usually communicate their compliance findings to plan management solely for plan administration purposes.
If this proposal is finalized, and annual compliance testing becomes publicly available information, plans that are subject to ERISA’s annual audit requirement should consider conducting periodic legal audits of their plan operations so that compliance issues are not disocvered for the first time during the plan’s formal annual audit.