AICPA develops new benefit plan auditing standards

The AICPA’s Auditing Standards Board is preparing to finalize a statement on auditing standards that is meant to beef up the auditor’s responsibilities when issuing an opinion on benefit plans subject to the Employee Retirement Security Act of 1974.

The AICPA’s proposed new standard includes new requirements for auditors to accept engagements and new requirements with respect to risk assessment and response. It gives auditors new marching orders in terms of communicating with those charged with governance over benefit plans, and it includes new audit procedures and new considerations for the Form 550 filing.

The Department of Labor (DOL) has been monitoring the audit quality of benefit plan auditing for several years, and it issued a report in 2015 calling on auditors to make improvements. The DOL said it found 40% of audits contained “major deficiencies” with respect to at least one generally accepted auditing standard that would lead to a rejection of a Form 550 filing, which is an information filing required by the DOL, the IRS, and the Pension Benefit Guaranty Corp.

The DOL’s study noted a “clear link” between the number of audits a given firm performs and the level of deficiencies. Firms performing the fewest audits earned a 76% deficiency rating, the DOL said.

By contrast, firms that performed the most plan audits had a deficiency rating of 12%. A further indictment on auditors, the DOL also said the profession’s peer review practices did little to flag any kind of problem.

The new standards will compel auditors to do more work to arrive at clean audit opinions, especially with respect to plans that are managed by firms regarded as heavily regulated. The previous auditing standard previously permitted auditors to reduce their scope of work over plans managed by “qualified institutions,” essentially firms overseen by banking regulators. That exception disappears in the new standard.