The Department of Labor (DOL) Limited-Scope Audit is Changing and What to Expect

If you previously had a DOL limited-scope audit performed on your 401(k) or employee benefit plan, you should be expecting some changes to your 2021 plan year audit.

The Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA) issued a new Statement on Auditing Standards for auditors who perform audits of financial statements of employee benefit plans subject to ERISA. This standard is effective for audits of 401(k) and employee benefit plans with periods ending on or after December 15, 2021, and directly impacts DOL limited-scope audits. Under the new standard, a DOL limited-scope audit will now be referred to as an ERISA Section 103(a)(3)(c) audit. The standard also calls for enhanced reporting requirements and additional responsibilities of management and the plan auditor.

What’s new?

The new standard includes changes in all phases of an audit of 401(k) and employee benefit plan financial statements including engagement acceptance, risk assessment and response, communication with those charged with governance, performance procedures, and reporting.

The ERISA Section 103(a)(3)(c) audit is unique to employee benefit plans and is not considered a scope limitation like the DOL limited-scope audit was. Since the audit will no longer be considered a “limited scope audit,” the auditor will no longer issue a modified opinion (typically a disclaimer of opinion) due to information that is certified by a qualified institution. Under an ERISA Section 103(a)(3)(c) audit, the plan will now be eligible to receive an unmodified opinion.

How do these changes affect plan management?

As part of the auditor’s acceptance of the audit engagement, the auditor will request plan management (sponsor/administrator) to acknowledge in the engagement letter management’s responsibilities for maintaining a current plan instrument, administering the plan, and providing the auditor with a substantially complete draft Form 5500 prior to the dating of the auditor’s report. In addition, the new standard requires that the auditor obtain certain written management representations at the conclusion of the engagement regarding those responsibilities. It also includes new acknowledgements related to management’s responsibilities when management elects to have an ERISA Section 103(a)(3)(C) audit, including determining whether such an audit is permissible, the investment information is prepared and certified by a qualified institution, the certification meets DOL requirements, and the certified investment information is appropriately measured, presented, and disclosed in accordance with the applicable financial reporting framework.

In addition, your auditor may request additional information (e.g. certification analysis) from you in order to perform the plan audit under the new standard, which may result in the need for you to spend more time preparing for your plan audit this year.

How can I learn more about the new audit standard?

Contact us or your current plan auditor to learn how the new audit standard will impact your 401(k) or employee benefit audit.