Between the end of January 2021 and the end of March 2022, the total number of registered SMSF auditors dropped from 5,575 down to 5,256 based on calculations undertaken by actuarial certificate provider Accurium from data from the SMSF Auditor Register.
This is an annualised decline in registered SMSF auditors of 4.9 per cent, Accurium noted, and a significant decline from the 7,032 SMSF auditors that were undertaking audits in the 2012-13 financial year.
Accurium noted that SMSF auditors had to comply with the revised independence requirements from the Accounting and Professional Ethics Standards Board from 1 July 2021.
“Many firms have had to put in place new external SMSF audit arrangements where they previously had an internal SMSF audit service and relied on the separation of duties model to comply with the independence requirement,” Accurium said.
“Similar to the introduction of the goods and services tax (GST) system way back on 1 July 2000, which saw many tax agents and practitioners decide to exit the industry, it appears that the new audit independence requirements are having a similar affect on the number of registered SMSF auditors.”
The actuarial firm pointed out that there has also been a trend of consolidation in the SMSF audit industry.
ATO statistics show that for the 2019-20 income year, 47.4 per cent of SMSF auditors completed at least five, but no more than 50, SMSF audits. Only 7 per cent of auditors completed more than 250 SMSF audits.
However, the cohort that completed more than 250 SMSF audits actually audited 58.8 per cent of all SMSFs, whereas auditors who conducted no more than 50 SMSF audits only audited 11.3 per cent of all SMSFs.
“This concentration of audits with larger SMSF auditors has seen a small, but steady increase since 2015-16, up from 49.4 per cent. At the other end, the no more than 50 SMSF audits segment has seen a decline from 13.9 per cent,” Accurium noted.
Despite the number of SMSF auditors decreasing, however, there has actually been a decline in the average SMSF audit fee, with the average fee declining from $700 in 2015-16 to $660 in 2019-20, with the median staying steady at $550 for the same period.
While there have been improvements in technology over this period that allow audit costs to be maintained at these levels, Accurium questioned whether the current fees were sustainable, particularly if the current decline in registered SMSF auditors and increase in the number of SMSF continue on trend.
“It could be argued that some level of consolidation in the SMSF audit sector could be a good thing in terms of driving up standards. How much value can an auditor who audits less than five SMSFs a year really provide? A race to bottom on the price of audits could have the opposite effect,” the firm warned.
“It appears that there is a growing trend to consolidate audits into larger client bases to take advantage of the economies of scale and with the use of technology.”
Accurium stressed the importance of SMSF accountants and administrators being educated about the audit process and understanding what type of evidence needs to be submitted for an annual audit to ensure a smooth and efficient year-end.
The SMSF audit industry is plagued by pricing problems. There are various factors driving this but an important one is that many SMSF trustees do not value the audit. Amongst accountants referring audits to SMSF auditors, it’s a complex relationship. Accountants believe their SMSF tax returns and financials are perfect and when an auditor picks something up it can cause friction. We lost a accountant, as an audit referring source last year because we kept finding errors in their SMSF tax returns and financials. This led to embarrassment of staff in that firm. The accountant’s reaction was to cease all referrals to us so they wouldn’t have to deal with the negative feedback. Frustrating as that was I do have a little bit of sympathy for the accountant’s position and the way he managed it.
Personally, I am not convinced SMSF audits are actually necessary. I think the whole liability risk for incorrect SMSF tax returns and financials, including prudential issues, should be put back onto the tax agent/accountant. If something’s wrong the client can sue the tax agent/accountant. The presence of the auditor creates an incentive to sue the auditor who often is charging a woefully inadequate fee to do the work they do. Finally of course low fees often means low quality audits so the audit often does not mitigate any risk.
I am sorry to hear of that situation. Our situation is that compliance breaches have been found in an accountant’s files. I am sorry but I do not have sympathy for the accountant’s position and the way he managed it.
Auditors should only be auditing the SMSF’s financials. Why are you auditing the Annual Return?
I like the audit process, as it allows for another set of eyes, and a different list of compliance matters reviewed, however I agree, the $300 audits OS are totally ridiculous, and yes the accountant, not the auditor should be on the butchers hook. Leave the auditors out of it.
Why should anyone but the Trustee be on the hook? They are the ones implementing any dubious transactions or tipping money into questionable investments. The accountant simply records details of those transactions on a historical basis.
How can it be my fault, as an accountant or auditor, that a client has illegally taken money or made a non-complying investment when I don’t find out about it until 11 months after the fact.
Agreed! Everyone wants a free ride these days, and no one is responsible for their own actions! As I keep saying, “you can not legislate for greed and stupidity”!
Accountants complete the Financials, this doesn’t necessarily extend to the compliance of the fund. Why should an accountant be responsible for non compliant behaviour by the trustee.
The role of the auditor protects both the trustee and the accountant.
Stupid rules make it very difficult for auditors to run a profitable business. SMSF are not BHP.
Are we heading down the same path as FASEA/Planners. To many restrictions. Too much complexity. Auditors are voting with their feet?
It is not only the independence standards – SMSF auditors with only a few clients are finding it difficult to compete with the sub-$300 firms, coupled with the risk ASIC will further increase the ridiculous ‘exit fee’ for auditors.