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ASIC, Auditing, Compliance

ASIC report at odds with three-year audit cycle

Triennial audit cycles not prudent given ASIC's SMSF advice report.

The corporate regulator’s findings into SMSF advice, which revealed in 91 per cent of files reviewed advisers were non-compliant, cast further doubt over the validity of the federal government ‘s proposal for a three-year SMSF audit cycle, according to a financial services executive.

Financial services firm Morrows chairman Murray Wyatt told selfmanagedsuper the findings in the Australian Securities and Investments Commission’s (ASIC) “Report 575 SMSFs: Improving the quality of advice and member experience” were at odds with the budget proposal for a shift to a three-year audit cycle.

“If you’ve got that degree of non-compliance, you need to look at it more often, not less. You need to get on top of these things all the time and fresh eyes are very important when you’re looking at something like this because if there is an error that did occur in the first year, manifesting through to the third year, it usually compounds to become a much bigger problem,” Wyatt said.

He also said a three-year audit cycle would create more issues than members envisage. If breaches occurred three years ago and they remain unchecked in accounts for that period, it is likely to be of greater consequence, he noted.

Morrows conducts remedial work for SMSFs when they are in strife, including negotiating with the tax office. Wyatt said he believes a three-year audit cycle would present the firm with opportunities to fix issues that have occurred over those three years.

“I think a lot of things will go wrong and they will be significant and they’ll need a lot of remedial consulting work to fix them up,” he said.

He further noted firms that purely engage in audits will face challenges, particularly in updating their skill sets as doing a three-year audit in one go will be more difficult.

They will have to rely more on quality record-keeping and things not changing significantly in the fund, he added.

“If you’ve got a set of accounts being done over a three-year period and a marital break-up halfway through it and division of assets and so on, that’s pretty complex work that probably needs a set of fresh eyes on it,” he said.

Treasury released a discussion paper last Friday to begin industry consultation on the three-year audit-cycle proposal for well-run SMSFs.

The discussion paper noted concerns expressed by stakeholders but said these concerns will be alleviated through appropriate eligibility criteria and, if necessary, transitional arrangements.

“The ATO will continue managing the risk of tax and regulatory breaches by monitoring SARs (SMSF annual returns), thus maintaining appropriate oversight of SMSFs on a three-yearly audit cycle,” the paper said.

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