The opportunity for SMSFs with a good compliance, record-keeping and lodgement history to move from an annual audit process to instead having to perform a fund audit every three years has the potential to damage the integrity of the sector, according to some industry service providers.
“There will be trustees that are rubbing their hands together on hearing about this measure because they use auditors that are comfortable in just signing off on the fund and in the scheme of things shouldn’t be signing off on some of the transactions involved,” Miller Super Solutions founder Tim Miller told selfmanagedsuper.
“This could be due to the length of time these auditors have known the client or the like, but it needs to be asked how many of those funds have contraventions or at least have issues that probably warrant the fund to be looked at every year.
“For example, if you’ve got an SMSF that’s always got issues, but it’s always under the 5 per cent reporting threshold, and so you don’t ever report them and you always lodge the returns on time, the ATO will be none the wiser that there are any problems there.”
Miller added the three-year audit cycle could present further problems for the sector as the time frame could allow some compliance issues to escalate unnecessarily.
“Three years is a long time to get things wrong and three years provides a long fixing period as well,” he said.
“If you do something wrong in that first year and don’ get audited until three years later, then three could be a lot of unwinding to be done, it could involve pensions and all sorts of things.”
Specialist SMSF firm ASF Audits believes the measure defies the ATO’s opinion that “approved SMSF auditors have a critical role in helping to maintain the health and integrity of the SMSF sector through the annual audit of each SMSF”.
Further, the audit firm identified two other potential problems with the policy. Firstly, resulting incorrect reporting could lead to an increased risk of revenue leakage for the ATO and, secondly, the measure would result in a heavier compliance burden on the ATO again as a result of inaccurate reporting of member balances and pensions.
IOOF senior technical services manager Julie Steed feels the government may have made a premature move to address the administration burden of having an annual SMSF audit when the procedure still has existing flaws.
Steed cited as an example the practice of including an approved SMSF auditor’s name in the fund’s compliance documentation when the practitioner in question never reviewed the fund.
However, she said there was a potential solution to the policy’s problems through a small adjustment.
She proposed only allowing SMSFs employing a professional administration service be eligible for the three-year audit cycle as it would give the ATO a degree of comfort that a fund was managing its assets properly.
“The government could also say if the SMSF only has investments in listed assets, managed funds, cash or term deposits, and no contraventions are reported, then it can move to a three-year audit cycle,” she noted.