Time to rethink SMSF audit?
With the government’s plan to reduce the audit requirements for squeaky clean SMSFs from an annual audit to an audit every three years, perhaps it is time to ponder your strategy regarding SMSF audit.
Whether you agree with the proposed change or not isn’t really the issue. It’s more about what should be your strategy with SMSF audit going forward.
Perhaps firstly, you should ponder whether you should be doing more to help clients understand the value of an audit. Non-compliance in the world of SMSF can be a disaster. Poor record keeping can be a disaster. Given that, for many SMSF members, their SMSF represents the bulk of their retirement savings so it’s pretty important to get it right. So perhaps there needs to be a better communications plan to inform trustees of the value of having additional checks in the system such as an audit to minimise the risk of non-compliance.
I suspect many trustees are blissfully unaware of the consequences of non-compliance. If they were informed and they understood better that an audit helps ensure non-compliance risks are minimised I’m sure many would be happy to see their fund audited annually. Mind you, perhaps if you are using a Chinese wall to conduct your audits, the client’s perception of the value of an audit could be diminished since the trustee may not feel the fund is subject to a fully independent second set of eyes.
Of course, we’re also seeing few rises in audit fees with downward pressure on pricing. This is driven by firms outsourcing their audits and by technology. It is very hard for an auditor of just a few funds to compete with the larger firms who can invest in technology, hone their processes and train their people.
So what are your options?
If you have only a few funds perhaps outsourcing is the way to go. There are both offshore and onshore offerings. This enables you to benefit from technology and scale without having to make the investment yourself. Some like Evolv will provide a white label solution whereby the audit carries your brand and you do the final sign off. Outsourcing enables you to earn a margin while having confidence clients are getting value and that high-quality audits are conducted. If it’s a full outsource, you don’t have to worry about maintaining educational requirements either.
If you don’t want to outsource you really have no option but to invest in one of the specialised SMSF audit tech platforms. The advances in these platforms provide such a competitive edge in terms of efficiency and audit quality that those that haven’t adopted them are falling way behind.
These platforms integrate with the main administration platforms generating key information, worksheets and analysis automatically. They also significantly reduce the amount of work required by utilising analytical tools to assess risk and determine key areas of focus. Reviewers are presented with concise information requiring their attention further streamlining the overall process. Communication between trustee and administrator is streamlined improving both efficiency and service quality.
Take care when selecting an audit technology platform. The platforms that can ingest the entire dataset from the admin system (all the transactions rather than just balances) have a much greater capability to analyse the data, automate the work papers and incorporate artificial intelligence to streamline the audit process and improve the quality of the audit.
Going forward it seems clear that the tech platforms are only at the beginning of their evolution. Artificial intelligence will become more sophisticated in conducting analytical reviews and determining compliance. Big data methodologies will be applied to enable auditing by machines of 100 per cent of the transactions and highlighting any transaction that appears unusual and requires greater review.
Big data will also enable auditing across funds. The big data sets from the aggregation of all funds data will further enable algorithms to uncover otherwise unforeseen trends and issues. Could we end up with fully machine audited funds? The purists will howl with rage but perhaps for funds with a simple investment portfolio where almost all processing is automated from data feeds perhaps that will be possible.
So perhaps at your next strategy day, you should put some focus on your approach to SMSF audit. There are opportunities to improve your service offering and the profitability of the service. Some providers like Evolv are providing comprehensive solutions offering outsourcing solutions or their SMSF audit platform, so no matter what might be your preferred approach to SMSF audit, they will have services or platforms that can assist.
It would be unwise to think that the world of SMSF audit is not undergoing fundamental change. The next few years will see even more change as technology continues its relentless march. Now is the time to set yourself up to provide the high quality, cost-effective service that you can.
David Smith, director, Smithink