In the May Federal Budget, the government made a number of superannuation announcements, including that compulsory audit cycle for SMSFs would be extended from one to three years (another was to raise the SMSF membership limit from 4 to 6).

Treasury has released a ‘discussion paper’, which says that allowing SMSFs, with a good history of record keeping, the option to move to a three-yearly audit cycle will reduce the compliance burden, cut administration costs and act as an incentive for SMSFs to submit their annual financials in a timely manner.

This concession will be available only to SMSFs that can demonstrate a clear audit report for three consecutive years and have lodged their annual returns in a timely manner. SMSFs will be able to “self assess” their eligibility for three-year audits.

But the proposal has rattled some because it comes at a time that the banking royal commission has examined financial services misconduct and after the Australian Securities and Investments Commission raised concerns about the quality of financial advice provided to people starting up SMSFs.

‘Cost saving’ – ‘cutting red tape’?

This is billed as ‘cutting red tape’ and a measure that will cut costs for SMSF trustees (the average audit fee being $694). But, plans to relax audit requirements for ‘well-behaved’ self-managed superannuation funds have been described as “very problematic” by professional auditors, who are fighting the change. For instance, auditor: Belinda Aisbett is dubious.

  • She says that conducting three audits, at once, would take as much time as doing one each year (though the measure might be to do a single audit of a 3 year period – not three audits, all at once). She says: “Audits have very little scope for economies of scale.”
  • “What we see in practice for funds that are late in getting their audits done is that fees go up – this is because documentation is not easy to come by, or we are attempting to locate historical information – which all adds time to the audit fee.”
  • A discussion paper released by Treasury says an SMSF on a three-yearly audit cycle will need to be audited in any year in which a key event, such as the death of a member or significant investment loss, occurs. At this time, there will need to be retrospective audits covering each financial year since the last was conducted.
  • “The self-assessment aspect of the proposal will be very problematic,” said Ms Aisbett, who is representing a group of auditors disgruntled by the proposed changes. “Trustees may innocently have a triggering event but not realise, and coast along thinking they don’t need an audit for a three-year period.”

8 weeks consultation on discussion paper

Michael Lorimer, managing director of the Self-managed Independent Superannuation Funds Association, said it was helpful that Treasury was providing an eight-week consultation period to deal with concerns about the changes.

“Critically, the object of the measure has been clarified and emphasised as incentivising good record keeping and compliance by SMSFs whilst retaining an optimal level of system integrity and oversight,” he said.

The law requires SMSFs be audited annually by an independent auditor who is registered with the corporate regular. If an auditor believes an SMSF is no longer a going concern or has committed a “reportable contravention”, it must report to the Australian Tax Office. In 2015-16, audit contravention reports were prepared for 1.6 per cent of SMSFs.

The paper says concerns about an increase in non-compliance by SMSFs and reduced profitability in the audit industry will be dealt with in eligibility criteria and “if necessary transitional arrangements”.

These arrangements could include splitting the SMSF sector into thirds, with one-third becoming eligible for the longer audit cycle every year from July 1, 2019.

[Australian Financial Review : Tuesday 10 July 2018, Article by Joanna Mather; Related TT Article; Tax Month – July 2018]

 

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