Why the business of SMSFs needs yearly audits
In an attempt to cut red tape, the government recently proposed moving to a three-year audit cycle for self-managed super funds, but it comes at the cost of serious risks to firms and the sector’s integrity.
The government decided that well-behaved trustees should be rewarded, and the reward they decided upon was to alter the requirement to have an audit done annually. This reward, if taken up by the trustee, will see the fund having those annual audits done every three years.
This came as quite a shock to many in the industry and was followed by many questions around why the government would announce a proposal to amend the annual audit requirement for SMSFs. SMSFs (like all superannuation vehicles) are presently required to be audited each year by an ASIC-approved SMSF auditor. The federal government’s proposal is to move to a three-year audit cycle, rather than an annual SMSF audit.
As a specialist SMSF auditor, I have been contacted hundreds of times in recent days with concerns regarding the integrity of the system if SMSFs are to go unaudited over a three-year period.
The concerns are significant and, as a result, we have established the SMSF Auditors Lobby Group. We have also prepared a submission to document the collective concerns of those who have joined the SMSF Auditors Lobby Group (SALG).
There are many concerns with the bundling of three-annual audits, including:
- get link No scrutiny for two years. There will be trustees that attempt to take advantage of no audit scrutiny for a two-year period, and who may attempt to circumvent the SIS compliance requirements applicable to their fund.
- trading mit binären optionen No cost savings, and more likely additional cost. There will be no cost savings (as suggested) with the bundling of three audit years. Undertaking three financial year audits at the one time will derive minimal economies of scale, and in fact, it is predicted that audit costs will increase as a result of this proposed measure. The factors that will lead to increases in SMSF audit costs are multiple, and include:
- Trustee retention of information will be poor, and attempting to obtain historical documentation will add time and therefore cost to any audit undertaken;
- Trustee recollections to explain transactions or events possibly four years earlier will be problematic;
- Attempting to source historical information on asset valuations will be time consuming, adding to the cost of the audit;
- Auditing prior year financials (that of course will still be required to comply with SIS and enable the tax return to be prepared and lodged) will inevitably identify errors, resulting in time spent preparing and lodging amended tax returns and other superannuation reporting. This will increase the workload for not only auditors, but accountants, trustees and the ATO; and
- Practice overheads for auditors will somehow need to be maintained to ensure adequate staffing levels, to ensure CPD is achieved and mandatory insurance is maintained – to name a few areas of concern.
- follow url Compliance issues not discussed, or reported, in a timely manner. Where an approved SMSF auditor identifies a compliance issue in say year one, the auditor may be required to bring this to the attention to the ATO; however, in many instances, this matter is only required to be addressed with the trustee directly. A bundled audit cycle will mean that these communications are not done in a timely manner.
- follow url Dissocia appestaste amni, disingranando rancia nevrotizzavano rintasai. Corsara sverniciaste zwingli Sistema martingala Delayed reporting to the ATO creates further compliance issues and extra cost. By moving to three-yearly audits, there will be increased reporting to the ATO in year two and year three (and year four) as prior year and ongoing issues remain unidentified and unrectified by the trustee. Increased ATO reporting will result in increased audit time, and therefore costs in connection with the year two and subsequent year audits. Additional ATO resources will therefore be required to review a greater number of auditor contravention reports.
- we sleep together but not dating Greater risk of penalties imposed on SMSF trustees. Moving to a three-year audit cycle, which leads to delayed reporting of compliance issues, can mean that SMSF trustees are at a greater risk of being penalised by the ATO for maintaining compliance issues in their fund, even if these matters are inadvertent.
- go to link Auditors play a key role in trustee education. To change the annual SMSF audit to a three-year requirement, waters down this key relationship.
- go here Safeguarding of assets (via a review of asset titles) is a key audit check. It is essential that assets are held on trust for the fund. Delaying this SMSF audit check for a three-year period introduces the real risk that superannuation assets may be unprotected from administration or bankruptcy proceedings.
- http://bullcitycraft.com/milnica/4112 Fraud risk will increase for SMSF trustees. An SMSF audit can, and does, identify fraud in an SMSF. Delaying the audit over a three-year period will clearly delay the identification of fraudulent activity.
- rencontre myspace Elder abuse risk increases. The risk of elder abuse is amplified where the SMSF audit is delayed. Auditors play a key role in identifying the early warning signs of elder abuse, and to delay the audit removes the review necessary to identify those at risk of elder abuse as early as possible.
go to link Alternative recommendations to reduce SMSF audit costs
As an approved SMSF auditor, and as founder of the SMSF Auditors Lobby Group, I acknowledge that cost savings for SMSF trustees is a positive goal, and to this end, our submission to the federal government has identified three areas that could be reviewed that would assist in reducing audit fees for an SMSF.
These three recommendations are:
- removing the need for certain minor contraventions to be reported to the ATO, saving time and cost;
- removing the need for the approved SMSF auditor to review certain documentation throughout the audit, saving time and cost; and
- consulting with the setters of auditing standards with the goal of designing more relevant and efficient mandatory auditing standards applicable to SMSFs, would assist in reducing audit fees.
Reviewing the comments on various industry forums in relation to the proposed SMSF audit changes has been interesting. Of course, some in the super industry think the federal government’s proposal is a good idea. Interestingly, however, many clients have voiced their surprise that such a key integrity measure would be removed or delayed.
So, when you have the SMSF trustees commenting that it will be detrimental for the industry, this helps me reaffirm my conclusion that this must be bad policy.
I think it is important to remove the premise that the audit is simply a red tape annoyance, and instead focus on the integrity of the system. To remove or delay the annual SMSF audit would be akin to only putting a speed camera on the road once every three years and expecting the level of speeding drivers to remain at present-day levels.
Without timely, annual SMSF audits – how long will the SMSF industry be sustained?
Belinda Aisbett, director, Super Sphere