Auditing, NALI/NALE

Discounts create NALE audit concern

SMSF fees NALE audit

SMSF auditors still need more information regarding discounted fees and are cautious about their treatment under the NALE provisions.

The application of discounted SMSF accounting and book-keeping fees outlined in the non-arm’s-length expenditure (NALE) provisions may still create problems for auditors who will need to gauge whether they are on commercial terms, according to an SMSF auditor.

ASF Audits head of education Shelley Banton said while the ATO’s Law Companion Ruling (LCR) 2021/2, which details the operation of the NALE provisions, allows for discounts to be given to staff of SMSF accounting and administration firms who run their own fund, auditors will need more information to assess the commercial terms of those discounts.

Speaking with selfmanagedsuper, Banton noted the LCR stated all fees, regardless of whether they are deductible or not, could be considered to create a nexus to all the income of an SMSF if they were non-arm’s-length general expenses.

She added the LCR did make reference to specific expenses, including accounting, actuarial and other administration expenses, but when it came to determining how those fees interacted with an SMSF’s income that auditors were “caught between a rock and a hard place”.

“This is where we get to the point where the discount policy of an accounting or administration firm, or a licensed real estate agent who is also a trustee, or tradesperson who is a trustee has to be really robust and set in place,” she said.

“This policy must get to the point where it will have to specify the services which are available to staff, employees and office holders, and who can get either discounted fees or pro bono fees that are being offered by the firm, and it has to be on a commercial basis.

“As auditors we will want to know how did they justify that?

“From an audit perspective we don’t want to hold these discount policies on our files, but we do need to know, that if we look at something, what was the basis for that decision? Do we start going down to benchmarking, similar to what the ATO is doing?

“How will we know that an accounting fee of $500, which are out there, is at commercial terms as opposed to an accounting fee at $4000, for example, so we really need to be able to work our way through this and that’s just going to take time.

“There is still so much we don’t know and where the lines are blurred, which is going to make it difficult for auditors.”

Banton also said SMSF auditors who could not gain sufficient transparency into the finances of a fund in regards to non-arm’s-length expenditure (NALE) may seek wider declarations that nothing remains undisclosed in an effort to protect themselves.

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