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In the 2018 Federal Budget announcement the government mentioned that an SMSF which has a history of good record-keeping & compliance history of three consecutive years of clear audit reports and have lodged on time from, 1st July 2019 will change the "annual audit requirement to a three-yearly requirement".

 

I see many problems if audit of an SMSF is conducted once in three years, such as:

1) It is not legislated that trustees must use services of an accountant / administrators or a tax agent. It is quite possible that about 10% of all funds, say 60,000 funds accounting work is done by Trustees themselves - e.g. I do not engage an accountant. If all trustees are allowed to lodge two years returns without an audit, chances of breaching the law are magnified.

2) The budget announcement is not clear that the audit will be for that one 3rd year or would the ATO amend the audit report, contradicting the auditing standard, to state that opening balances of members and assets are not confirmed by the auditor.

3) When last time ASIC changed its rules regarding limited AFS licence for accountants the professional bodies did very little. We all are aware of low adoption of these rules by the accounting fraternity. This is a an example where rules are changed by government without prior & proper industry consultation.

4) Audit fee is a very small part of SMSF costs. I am of the opinion, why fix something when it is not broken. Average fund size is $600,000 and average audit fee is $600 which means that the cost to the fund is only 0.1%. If the government is concerned about reduction of member balance at the time of members retirement due to erosion by audit fee, it should consider reduction or removing tax on contributions or on income of the fund. As an example: If a 30 year old contributes $10,000 as concessional contribution to the fund and the fund returns 5% income, the member pays $2,231 tax on income on the contributed amount till he retires at age 65. This means that total tax collected on $10,000 contribution is 37.31% including tax on contribution.

5) Large specialist audit firms will not be able to cope with irregular staff requirements if required to audit a large number of funds every 3rd year. SMSF Audit staff is a rare breed as they need to know not only auditing techniques but also SISA and SISR. Staff retention and training will be a big issue going forward.

6) It is yet to be seen what "history of good record-keeping & compliance history of three consecutive years" means when legislation is introduced, as the auditor could be pressurised to ignore compliance issues in each audit year to ensure that the fund complies to triennial audit.

7) I doubt that overall audit fee will reduce under a triennial audit regime. Auditors auditing funds that are not audited for the past two years would use their sceptical mind and will take more time to audit the fund and due to higher audit risk charge appropriately. Cost of professional indemnity insurance may also go up.

8) Triennial SMSF audits will increase ATO activity. Currently SMSF Auditors act as eyes and ears for the regulator, if these eyes and ears are shut for two years, ATO will have to be more vigilant on Trustee behaviour in those two years.

9) Triennial audit are announced in the budget for only SMSF's and not for large public offer or employer sponsor funds. Trustees in future may opt for the non-audit version of superannuation funds for ultimate control of funds. It is possible that a large number of SMSF's are created in future.

 

The way I understand the industry, administrators and accountants rely on SMSF auditors expertise to point out deficiencies in record keeping and compliance issues, whilst they are responsible for preparation of financial statements. Financial planners regularly consult super fund auditors on compliance issues before suggesting to implement any major strategy to the fund Trustees. This valuable relationship cannot be considered as unnecessary or "red tape". This relationship must be respected and appreciated by all parties, there is nothing wrong in an annual health check.

I have no idea how and by who this issue was put forward (other being 6 members in the fund, why not 7 or 10 to include grandchildren in the same fund) to the minister. I think as SMSF auditors, we must raise a voice together and let the government know on how SMSF are audited and what we do in the whole process. We must alert the government on why breaking this important tick off could possibly tarnish a world class self managed retirement system which is so unique to Australia.

Lastly, you will see that your professional body will either do or say nothing, like last time with limited AFSL on this proposed law or like SMSF Association (formally SPAA), support the government's move - perhaps now it has more Trustee members than professional members. Another Trustee representing organisation SISFA, has announced that they will open a new segment of membership for SMSF Auditors. I do not understand how the objectives of an organization which has 10,000 to 20,000 Trustee members and who claim "To be the voice of Small Independent Superannuation Fund Trustees" can be aligned with SMSF auditors.

I think, time has come that SMSF auditors get together and do it well before the government opens this dialogue to professional bodies. Our voice has to be stronger and louder and the only way this can happen, if more SMSF Auditors who speak the same language, get together in a new association, SMSF Auditors Association of Australia (SMSF AAA).

In my last email, I got over 100 YES form SMSF Auditors, for a new association, We have enough members to set up the association, however we need more.

 

SMSF Auditors Association of Australia

 

Those who have not responded and are in favour of joining SMSF AAA a representative body dedicated only to SMSF Auditors - kindly send an email to

yessmsfassociation@ucservices.com.au

Once the association is set up - I will send you a link to the website where you will be able to join the association.

 

Please express interest at one of the three levels:

a) Founding Member - minimum 7 required (we have this number) - $100 contribution required to set up LTD company etc

b) Focus Group Member - will actively participate in discussions

c) General member - no additional role

 

I contact all founding members for forming the association and its constitution etc.

 

Brief agenda of the association - to be decided by founding members in the first AGM.

1) Representation / Assistance when ASIC / ATO investigates SMSF auditor

2) Representations to Government on key SMSF matters

3) Website with relevant information downloads to members

4) Monthly free webcast from SMSF Industry experts for free CPD hours

5) Annual SMSF Expo - to generate funds for the association

 

Fees: Anywhere from Zero to $100 per year - to cover costs of annual registrations (non-profit)

Employees: Nil

 

Let's get together....

Manoj Abichandani

ASIC Approved SMSF Auditor

 

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