Audit Implications of GASB 68
Governments providing defined-benefit pension plans likely will commit more resources to accounting and audit preparation than in the past. Under GASB Statement No. 68, Accounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27, pension amounts may no longer be immaterial financial statement items, and information behind the financial statement amounts must be supported and auditable or the governmental entity risks receiving a qualified opinion.
Governmental entities should expect auditor testing to extend beyond the standard testing of payroll, which generally includes reconciling payroll expense and withholdings to the general ledger and federal filings and verifying pay rates against salary scales and proper authorizations. GASB 68 significantly changes how governments measure and report long-term obligations and annual costs associated with pension benefits; it requires them to dive deeper into verifying employee census data in preparation for the annual audit.
Requests for information may arrive sooner than later, especially for employers/sponsors who are part of a larger defined-benefit pension plan. The plan auditor may request to perform preliminary or internal control testing or may request the employer auditor perform the testing and report the results. As discussed in this white paper, audit requirements will significantly differ depending on the type of pension plan in which the employer participates.