Why the 3-Year SMSF Audit?
How often should your self-managed super fund (SMSF) be audited? Currently, the ATO requires an annual audit for your SMSF, but that might change soon due to a proposal to extend this to a 3-year cycle.
This measure is done to lessen red tape and lower costs, but there are concerns that this may not be the outcome.
Are the advantages worth the hassle?
Do you have your own super fund? If none, you most certainly know someone who does. With over half a million SMSFs in Australia as of June 2018, it is undeniable that the trend has caught the mass’ attention. Majority of SMSFs are owned by families or spouses with only 2 members. The total numbers for SMSF assets registered is about a quarter of all superannuation funds with an estimate of $750 billion, this number alone is stellar.
Many cases have surfaced that SMSF funds provide direct cash to their super’s investment manager, without a bank account, mostly to incur higher interest rates. This system can contribute to inconsistency and unlisted assets. Once these funds are audited by registered auditors, it became evident that trouble is brewing for these funds, some even lost assets amounting to nearly a million dollars due to non-compliance.
For these cases, a timely and accurate audit report would have helped the trustees understand their true position.
Benefits of the 3-Year Audit
In theory, SMSF trustees can experience these advantages:
Lower administrative costs and;
To conduct annual audits was deemed costly for most SMSF trustees. Hiring auditors for SMSFs yearly adds up to the operating expenses SMSF trustees can gain annually. However, that is a discussion for another time. Some experts say there is an inverse effect when this legislation passes.
Reduce red tape.
Running your own super can be overwhelming for some, especially with all the bureaucratic compliances and regulations you need to adhere to. With the 3-paragraph policy, SMSF trustees are promised that this “lessens red tape”. The policy is designed to shift the audit requirements for do-it-yourself superfunds from a compulsory audit every year to a single compiled audit every three years.
Eligibility to the Policy
Not all SMSFs can switch to the new policy. For an SMSF to be eligible, it must have:
- A clear audit reports for three consecutive years;
- A record of timely SMSF Annual Return (SAR) submissions - while this has not been clearly defined, SMSFs who failed to submit their SAR promptly may fail to qualify from this policy and;
- Situations that influence the timeline of the audit eg. death of a member, addition or removal of a new member.
Risks of the 3-Year Audit
Simple Audits can be More Challenging
While the new policy seeks to help SMSF trustees to have lower administrative costs, auditors will have a rather difficult time to conduct comprehensive audits since it’s considerably harder to track down old data.
With more data to analyse, more time is spent on the audits, which will incur more expenses for SMSF trustees. During the three year period, some SMSF may lose or not maintain their data due to many reasons, this makes audits, even simple ones, more challenging to accomplish.
Change almost always translates to instability. The ability for auditors to cope up to this new policy is in question. Currently, auditors have a better workflow and increasingly good access to timely data. Due to the sudden shift, most audits might be less frequent and workload may fluctuate because of the transition.
Auditing firms, presented with this change, will have to find new strategies to make an effective and efficient workflow for SMSFs audits without compromising the audits’ quality.
Less Advice for SMSF Trustees
The current system works in the best interest of both trustees and auditors. Some cases of non-compliance happen unintentionally, and a good auditor might be the person to detect this oversight.
In the absence of yearly audits, this becomes harder for SMSF trustees to check their super funds if they opt out of the annual health checks.
If SMSF trustees consider to have yearly checks for compliance this might be an additional cost for them.
This is one of the most significant risks and effects of the 3-year audit. When you create your SMSF, you would always think that you’re trying to do yourself a favor to secure your retirement. However, non-compliance, unintentional or not, if left undetected over time will still amount to higher penalties.
Unclear Audit Timetable
In the annual audits, SMSF trustees have an obligation to have their audits conducted by a registered SMSF auditor yearly. But with the current proposal, it is unclear as to who assumes the burden to have the SMSFs audited.
It is good to note that there are readily available software and applications that cater to SMSF annual audits. As we welcome this change, new challenges arise to accommodate the new workflow. Additionally, the technological updates poses a learning period to master and properly implement its function. This makes the transition rather critical than helpful.
Looking for Help?
Super Audits is one among the most reputable auditing firms serving a diverse clientele all across Australia. At Super Audits, our professional auditors are equipped with expert industry skills and experience to do better for your business.
The policy is still only a proposal, but it also highlights the importance of having good auditors. In the meantime, if you have any questions about the current compliance status of your fund, or audits, feel free to contact us today at 1300 AUDITOR (1300 283 486).
No matter where you are in Australia, Super Audits can assist you!