Annual SMSF Audit is the only option!

CaseWareCaseWare News, Industry News, opinion, SMSF Auditing

Sharlene Anderson

Director, Veritas Corp

Registered SMSF Auditor


In brief:

  • The Cooper Review of 2009 stated “Given the growing size of the SMSF sector and the importance of the audit role, the Panel believes that the current frequency of annual audits is appropriate and should not be reduced”
  • The potential for professional fraudsters to take advantage of this proposal is unquantifiable

This blog has been written by our SMSF Audit content expert, Sharlene Anderson of Veritas Corp

One of the more perplexing announcements to be found in this year’s budget is the “revenue neutral” change to the audit cycle for some SMSFs. It is proposed that from 1 July 2019 SMSFs with a good history of record keeping and compliance will have the current annual audit requirements changed to a three-yearly cycle.

This announcement has sent shock waves through the SMSF audit industry which has undergone significant changes over the past 8 years with the introduction of SMSF Auditor registration, stricter requirements on professional development and independence.

However, this is not a new initiative. In contrast, this proposal was one of many considered by the Cooper Review as part of the Federal Governments Super System Review established in 2009. Whilst many interested parties are lamenting the pros and cons of the proposal it seems more logical to consider the findings of the Super System Review which considered the Governance, Efficiency, Structure and Operation of Australia’s Superannuation including SMSFs.

According to the report1 “Approved auditors are the cornerstone of the existing regulatory framework and are heavily relied on by the ATO to manage SMSF compliance. Their competence and independence should provide the level of assurance that a compliance‐based regulatory framework demands.” Based on that opinion the Approved SMSF Auditor regime was introduced which saw ASIC and the ATO combine forces armed with new powers to regulate auditors to ensure competency and independence.

The Cooper Review responded to submissions to reduce audit frequency as follows:

“7.5.1 The Panel believes that the annual audit provides a high level of assurance to members, regulators, government and the community more generally.  Without this assurance, it would be unlikely the current ‘control’ features enjoyed by trustees could be retained.

Some SMSF trustee submissions recommended the removal of the audit requirement or for its frequency to be reduced.  These submissions often cited cost and the belief that the audit was unnecessary.  The Panel strongly rejects these views, noting that the extent of tax concessions for SMSFs justifies the public interest in independent assurance about the existence and value of fund assets, and funds’ compliance with legislated requirements.  

On the other hand, other submissions indicated that having less frequent audits would result in increased compliance costs and potentially a greater number of contraventions throughout the sector.  The Panel agrees with these views and it also believes the annual audit acts to engage trustees with their superannuation.

Given the growing size of the SMSF sector and the importance of the audit role, the Panel believes that the current frequency of annual audits is appropriate and should not be reduced.”[1]

Since the date of the Cooper Review, changes to superannuation rules including market value reporting, transfer balance caps, and access to non-concessional contribution caps, have increased, not decreased, the need for an annual audit that verifies the integrity of SMSF financials.

It is argued that, if a three-year audit cycle is introduced, then the audit must cover the three-year period which will result in increased compliance costs. Further, with the longer cycle being public knowledge, not only is there increased potential for trustee mistakes and or mischief, but the potential for professional fraudsters to take advantage is unquantifiable.

Given the fundamental role auditors play in the SMSF regulatory framework, true independence of auditors is crucial for the efficient and effective operation of the SMSF sector. One is left to question how an auditor’s independence will not be impaired by the proposed changes and, how this is in the public interest given the significant tax concessions and government resources allocated to this sector?


[1] Super System Review Final Report Chapter 8 Self-managed super solutions
https://static.treasury.gov.au/uploads/sites/1/2017/06/R2009-001_Final_Report_Part_2_Chapter_8.pdf

 


Another comment on the SMSF Audit budget announcement can be located on ABC Online at this link.

SMSF Advisor is currently polling on this issue. Register your vote here. They have an article also.

Another article on the same topic from selfmanagedsuper magazine.

And from Professional Planner: Advisor rues change in SMSF audit rule.