While some may consider auditing a dry topic, the SMSF audit profession has certainly had its share of issues and debates.
Educational standards, quality of audits and auditor registration have been some of the themes in the past few years.
More recently, however, with SMSF auditor registration (and associated competency standards) now settled, the discussions have moved more into the future direction of SMSF audits with a few trending issues.
Automation
There is no doubt automation has played a significant role in how SMSF audits are being conducted and increasingly how they will be conducted in the future.
Technology is allowing auditors (and others) to streamline their work and create efficiencies on a far greater scale than ever before. It is becoming abundantly clear that anyone offering SMSF audit services needs to embrace technological changes if they wish their businesses to remain competitive and viable.
But the question remains: how far can automation go? Can an SMSF audit ever be fully automated?
Some industry commentators have suggested this may well be the case. I, however, do not subscribe to this view.
While technology may assist auditors to work smarter and faster, professional judgment will always be required in carrying out a quality audit. The ‘smell’ test cannot be automated.
A competent auditor will always use a degree of professional scepticism in conducting their work. I would question whether a ‘gut feel’ about a client, a set of accounts or a transaction could ever be automated.
The direction and extent of an audit will be influenced by the use of that professional scepticism.
Furthermore, while the use of technology can enable more timely and efficient audit practices, auditors must still recognise they have professional obligations to ensure the quality and accuracy of other providers that facilitate the use of that technology.
That is, have the software or data feeds being used undergone appropriate systems audits to ensure their reliability? It is not sufficient to simply say that the data is coming from a third-party source.
The quality of the provider and the data feeds must be a consideration for any auditor.
Frequency of SMSF audits
As the government is looking at ways to facilitate red tape reduction, it has been suggested again the frequency of SMSF audits could be reduced. That is, instead of an annual audit requirement, SMSFs may only need to obtain an audit every three years unless a problem exists, in which case an annual audit requirement would be retained..
This very issue was explored by Jeremy Cooper during the 2009/10 Stronger Super review into Australia’s superannuation system.
It was summarily dismissed and the rationale behind that decision remains as valid today as it was then. Cooper believed the ‘control’ features enjoyed by SMSFs could unlikely be retained without the assurance that an annual audit provides the members, regulators, government and the community.
Furthermore, Cooper found the tax concessions available in SMSFs “justifies the public interest in independent assurance about the existence and value of fund assets and funds’ compliance with legislated requirements”.
The report also considered that reducing the frequency of audits may actually result in increased compliance costs and more contraventions. Certainly, where a contravention does occur, significant time could elapse before it is discovered and rectified.
The practicalities of auditing necessitate an auditor verifying opening and closing balances. Auditors would still therefore be undertaking audits of three years of transactions.
These longer time frames may result in difficulties in verifying assets and transactions and obtaining appropriate audit evidence.
Chartered Accountants Australia and New Zealand continues to hold the position that, in the interests of appropriate regulation and oversight of the SMSF sector, annual financial and compliance audits of SMSFs are required.
Timely assessment of the compliance of a fund is vital to ensure the integrity of the SMSF sector with annual audits facilitating appropriate reporting and correction of breaches.
Chartered Accountants Australia and New Zealand remains committed to ensuring quality SMSF audits are being carried out by competent auditors. To this end, we need to ensure developments in the industry and audit profession, while commercially attractive, do not undermine the role of the SMSF audit.
The ongoing success of the SMSF industry may well hinge on it.
