Tracey Scotchbrook, SMSF Specialist Advisor, writes about the Budget 2018 proposal for three-yearly audits for SMSFs.
A surprise inclusion in the Federal Budget was the proposed introduction of a three-yearly audit cycle for qualifying Self-Managed Superannuation Funds (“SMSF”) from 1 July 2019. This has blindsided not only SMSF auditors, but the SMSF industry generally.
As is often the case the Budget announcement was scant on details. What the announcement did say is that the measure would apply to SMSFs:
With a history of good record-keeping and compliance:
- That have a history of three consecutive years of clear audit reports; and,
- That have lodged the fund’s annual returns in a timely manner.
In the current climate of the Financial Services Royal Commission, the announcement was all the more puzzling. Historically, whenever the SMSF sector has been challenged it has been able to stand tall due to the strength and integrity of the SMSF system. SMSF auditors are an integral part of that framework.
The Australian Taxation Office (ATO) has been outspoken regarding concerns surrounding low-cost audits and the quality and integrity of those audits. The ATO’s position reaffirms the important role auditors play.
It has been shown that the majority of SMSF trustees and advisors do the right thing. This is supported by the ongoing data collection and reporting by the ATO and a testament to the established compliance protocols.
The SMSF audit is both a financial statement and compliance audit. With that in mind, some initial practical issues and concerns include:
- Scope of audit – Prior period transactions?
- Compliance with the audit standards (e.g. opening balances)
- Increased risk to auditors
- Increased cost of audits
- Staff levels and work flow management for auditors
- Trustee engagement with auditors
- Increased risk and cost to trustees if something goes astray during non audit periods
- Provision of all the necessary historical information and documentation to auditors
- Opportunity for the manipulation of member account tax components
- Manipulation of asset valuations
- In-house asset monitoring
- Under payment of pension minimums (or over payment for transition to retirement pensions)
- Increased risk of compliance issues or breaches without regular review
- Monitoring and assessment of audit cycles by the ATO – resourcing?
The measure is intended to reduce red tape for SMSF trustees. Does it really? It has been reported that the Government will consult with stakeholders to ensure smooth implementation.
Contact Tracey at firstname.lastname@example.org