As an SMSF trustee, your top priority should be to get your fund audited by one of the approved auditors each year. For the purpose of such audits, it is important to formally appoint the auditors and there is a timeframe attached to doing so.
This is just the visible part of the audit ‘iceberg’. There is so much more that you have to understand about the process and which remains hidden from common view till a professional helps you with them. Let me talk about all the possible aspects of SMSF audits here and I can put a small wager that some of them will really surprise you.
SMSF auditors need to keep dates in mind
An auditor must be hired a minimum of 30 days before the date of lodgment of SMSF returns. Once he is hired, he will provide you with a letter of engagement which duly catalogues the scope of his audit. While an approved auditor can choose to undertake many tasks at your behest, he must, at any rate, perform two most important tasks. These are 1) financial audit and 2) compliance audit.
For the purpose of the audit, the auditor may require your thorough assistance and it is integral that you extend maximum support. Before everything else, it is crucial to pass him as many documents as he deems fit for his auditing job.
SMSF auditor has to provide a letter of engagement
Just as an SMSF auditor provides a letter of engagement to furnish his intent and work scope, he expects you to provide him with a letter of representation. This letter encapsulates the belief of trustees that the documents that they have provided are fair and compliant with the laws of Superannuation. Your approved auditor next prepares the report and he shall culminate doing so within 28 days of having got the documents from your side. This report, unless notified, comes with an audit finalisation report.
DIY super fund penalties in place
ATO, the premier body, believes that an approved auditor requires to state to it any concern that it finds in a client’s financial or compliance profile. The auditor is liable to be fined if it digresses from performing this duty. Such reporting may include contraventions that the auditor finds in the client’s fund.
SMSF tax return lodgment and compliance
If on the one side, the ATO can be strict on the SMSF trustees (as we will find out a little later), on the other side, it can also be very harsh on the auditors. The proof is right at our disposal: so many auditors have been axed by the ATO for failing to perform their roles in regards to the ATO contravention for DIY super funds.
SMSF audits come with time limits
Coming back to the time limits and the penalties involved. If an approved auditor fails to provide an audit report within 28 days from the time all the documents have been furnished to him by the SMSF trustees, he is liable to be fined a sum of $8,500. For the record, this is equivalent to 50 penalty points; each point being equal to $170.
If the trustees fail to hire an approved auditor, at least 30 days before the date of lodgment of SMSF returns, they are liable to be fined a sum of $8,500 or face an imprisonment of up to 2 years.
Australian SMSF has to adhere to the SIS Act
Section 35C pertaining to the Superannuation Industry (Supervision) Act 1993 (SIS Act)- which stipulates all the regulations in this regard- talks about the maximum time that the trustees get to furnish their documents. Once the request has been put in writing by the auditor, the trustees have a maximum of 14 days at their disposal to present those documents. Failing to do so can attract penalties as discussed above.
It is not hard to discern that the role of the approved auditor is a difficult one. The SMSF industry is a relatively new one and it lacks prudential regulations. In light of this fact, it can be deciphered that the role of the auditor becomes all the more meaningful. So the question arises- who can be an approved auditor? Surely, not everyone can be!
SMSF auditor registration
Going by the Superannuation Industry (Supervision) Regulations, 1994, an approved auditor can be one among the fraternity of Registered Company Auditor, Auditor-General, Member of Institute of Chartered Accountants of Australia, Member of the CPA, Member of the National Institute of Accounts, Member or Fellow of the Association of Taxation and Management Accounts, Fellow of the National Tax and Accountants Association Ltd, or a Specialist Auditor for the SMSF Professionals’ Association of Australia Ltd.
SMSF audit services offered by an independent auditor
Independent auditors can provide a variety of services and they can easily extend their tether and offer extra services, too. Of course, they charge more in such cases. We will cover it in greater detail as we move ahead with the article.
Auditors who are well versed with their jobs make it a point to stay abreast with the latest development in the field; the changes can, after all, be made by the ATO pretty dynamically- both in terms of regulations and guidelines.
Super fund audit data kept confidential
Any data provided by the SMSF trustees is completely confidential and the top auditors are sworn to secrecy. They deal with SMSFs on a pan-Australian scale and this kind of integrity is a cornerstone of their auditing practice; irrespective of whether they work as an individual or a firm. Most of the top auditors take pride in a fast turnaround time, often close to 2 days. If the trustees desire to understand a particular aspect of the auditors’ work, they have templates, advice and free support made available by the auditors for the purpose.
SMSF audit fees has been an ongoing debate
There is a question that cannot be ignored any further. Among the SMSF trustees, there is a widespread apprehension regarding the auditing fees. It may be worthwhile discussing whether the fees are disproportionate with the work at hand of the auditors or if the whole audit fees hoopla is just another rumour floating in the air.
Super auditors have often been criticised
The SMSF trustees argue that because the nature of the audit is mandatory, they find themselves vulnerable and the auditors use the scene to their advantage, often charging in excess of $2,000 for a fund worth $200,000. This is as high as 1% of the fund amount, the trustees contest. They seem to have a valid point. But do they? Let’s make an unbiased enquiry.
Audit fees are high, are they?
The cost of the audits is determined by several aspects and you need to factor in, the complexity of the fund in question, number of members, complexity of/number of investment strategies in place, volume of transaction, phase in which members are (accumulation phase, pension phase or the combination of both) and the specifics of the trust deed.
SMSF auditor requirements- For what service has he been hired?
All these factors contribute to the final cost but having said this, it is important to notice that no cost is a good cost if the auditors avoid talking about it. The cost can certainly be on the higher side and this will be demonstrated by examples shortly but when the auditors do not want to talk about it, something must surely be amiss.
It is wise not to use such auditors and this is why it is important to talk about such protocols well in advance. Something like, “I am sure you will find no reason not to talk us through the costs, Mr. Auditor”.
SMSF audit program adopted by independent auditors under scrutiny
In fact, if you think the independent auditor is charging you more than he should you can also seek out the Australian Securities and Investments Commission which registers and regulates the auditors across Australia.
Engage Super audits but judge cost beforehand
While judging the expenses incurred for undertaking an SMSF audit, you can use two models. Model 1- analysis based on 25 providers and Model 2-data furnished by the ATO on the costs of SMSF audit. What do such researches show? They categorically suggest that the auditing fees start at $600 and can go up till $3,000 (and sometimes even more). A lot of it will depend on the factors that we have discussed above.
A 1% fee can seem really high on occasions but it will be important to figure out if the auditors have also been sought for ancillary jobs which are outside the scope of financial and compliance auditing. If yes, then the trustees must be ready to pay 1% or even above this.
It is not unheard that the auditors have charged more than $3,000 as audit fees for a fund worth $2,000. The idea is that the nature of work involved should justify the costs and the auditors must be extremely transparent about the bill they make the trustees foot.
SMSF audit fees- couple of examples
Let me use two examples to boot home my point. There are occasions when the reports furnished by the trustees are incompatible with the auditor’s accounting system. In such an event, he has to key in the data again and this takes a fair amount of work. Of course, the auditor has no option but to charge more. Another example is when the auditor himself pays the supervisory levy. This amount can be anything between $290 and $580 (can be lower or higher). This levy is then added into his final fees.
It may be worth noting that the number of SMSFs forking out more than $1,000 has come down with time and those paying less than $500 have come up.
SMSF information partaken by the ATO
The Australian Taxation Office asserts a great deal on compliance. Its new penalty regime clearly suggests its agenda. While the ATO tries its best to arrange as many SMSF webinars and information-sharing platforms as possible for the SMSF trustees, it also makes it amply clear that the SMSF trustees can only ignore compliance issues at their own peril.
Managed Super funds under ATO review
Each year, the ATO chooses several Self managed super funds for the purpose of auditing the compliance and income-tax obligations. Before anything, it is important to establish that the ATO can choose to ignore your follies if you are ready to be completely transparent with it and acknowledge your mistakes. Sometimes, you can be doubly sure that there are no compliance breaches from your side. And yet, a few aspects of your fund’s audit may still reveal glaring inadequacies.
But, if you are ready to give as many disclosures as possible; the ATO will know that you have best of intent in your heart. Punished, you will still be, but the ATO might take a more lenient approach towards your punishment.
SMSF accountant is the man to go to
If your account has come under the review, you need to be really calm about it and talk to your accountant. He will be able to sort out any query that you might have before meeting the representative from the ATO. Remember that the ATO likes trustees who are proactive in nature.
Non-compliance notices can come your way, your fund can attract large fines or have its existence revoked but it is still crucial not to try and play a game of one-upmanship with the ATO. Ideally, you should keep talking with your advisers so that the event of non-compliance never rises.
DIY Superannuation penalties
Talking of penalties, inability to prepare your financial accounts can get you a penalty of $1,700 while failure to abide by the contribution rules can attract a penalty of $3,400 for you. Of course, the penalties can be much severer. For instance, mistakes made by the corporate trustees can attract far bigger penalties.
Now, let us talk a little bit about the auditing software that have gained prominence in the SMSF sector.
SMSF software for trustees can make the job hassle-free
Manual audits have often proved cumbersome. Technology has made it really interesting for us. Today, we have auditing software in place which have been groundbreaking in reducing time and bringing down the manual components (signing, mailing and scanning of reports pertaining to audit, management, engagement, representation, invoicing and contravention). A virtual checklist offers peace of mind, both to the trustees and the auditors and the software invariably help in providing a fuss-free, expedient and high quality audit.
SMSF audit checklist handled effectively by software
Audit managers (software) can help in auditing as many as a million funds simultaneously. Kudos to technology! Binding speed and volume and that too at the fraction of cost otherwise spent! Cloud auditing certainly seems like the beacon of hope for many SMSF trustees who have their eyes set on SMSF compliance.
There are various attributes of SMSF auditing which may have been disturbing you. I think that peace of mind is most important in this respect. You don’t want to have nightmares about the ATO debarring your fund or imposing penalty on it. If there is much on your mind, feel free to join us. I will be more than glad to help ease your stress.