Choosing to retain administration and accounting services for SMSF clients instead of providing auditing service is most likely to be a more prudent strategic business path for practitioners to make in order to comply with the amended auditor independence standards, two senior industry specialists have said.
“I don’t know why an accountant would want to make that particular decision [to continue to provide fund audits] in the first place because it just seems, in my humble opinion, that that’s a bit of a dead end business model,” ASF Audits head of education Shelly Banton told attendees of the most recent Accurium technical webinar last week.
“There’s really no potential for growth and at the end of the day you may lose your client base anyway because they might stay out of loyalty to start with but what happens when they have a question? Then you can’t answer it, your auditor can’t help because then they’re reviewing their own work, so where are they going to go to get an answer from?
“All of a sudden [the clients will be asking] well why am I staying with an accountant who can’t actually help me at the end of the day.”
Accurium head of education Mark Ellem advised practitioners to consider carefully the implications of servicing a client who allows the firm to meet the routine and mechanical requirement in the preparation of the SMSF’s financial statements.
“[This would mean] the firm cannot assume any management responsibility and accounting policy responsibility because the trustee makes all those judgements and decisions regarding the accounting,” Ellem said.
“From a business point of view if they decided to retain the audit and adopt a routine and mechanical [strategy] then [there are a range of] other services that the firm can now not provide to their clients – strategies on maximising he fund’s claim for ECPI (exempt current pension income), allocations of withdrawals, contribution strategies, reserving strategies and the like.”
In addition, Ellem pointed out a client who takes most of the responsibility for the accounting function of an SMSF will come with more than this opportunity cost.
“What fee can we charge for the preparation of accounts if [the process] is routine or mechanical? If the trustee is doing all the work then if we charge $1500 last year to prepare the accounts we can’t charge $1500 this year because the client is doing all the work.
“So we’d potentially be retaining an audit fee and lowering our compliance fee and then eliminating potential other fees from providing strategic advice. So again from a business view point we need to consider all of those factors,” he suggested.
The ATO has stipulated accounting firms must comply with the amended independence requirements.
