In a submission to Treasury’s consultation on the three-year audit measure, Tactical Super director Deanne Firth said adopting the definition of a “clear audit report” as the criteria for determining whether an SMSF trustee should have to undertake an annual audit or is eligible for the three-year audit measure is problematic as it ignores certain compliance steps that may have been missed by the trustee.
The government released a consultation paper detailing proposals for the eligibility criteria in early July.
While the paper has proposed that eligibility be based on self-assessment by the trustee, it says that where the ATO becomes aware that the SMSF trustee has failed to submit an SMSF annual return (SAR) in a timely manner or has failed to procure an audit in a year of a key event, the ATO will notify the trustee that an audit is required.
In her submission, Ms Firth said this ignores the fact that auditors deal with certain compliance issues in the management letter they send to clients.
“A lot of minor or immaterial items are dealt with in the management letter to the client. These are essentially advance warning that a trustee is not fully comprehending their responsibilities or taking the correct steps to safeguard either the investments or fund,” she explained.
If a fund has not taken the minimum pension payment, for example, but the underpayment is less than 1/12th of the minimum pension, they have the option of a one-off exemption where they can self-assess and do not need to notify the commissioner, she noted.
“If a clear audit report is the criteria, then a fund in the above situation could move to a three-year audit cycle even though they are at higher risk of having a pension shortfall situation in the next year and overclaiming their exempt current pension income,” the submission stated.
“Another example is in the in-house asset provisions under SIS Act section 82. If the market value of the funds’ in-house assets exceeds 5 per cent, the trustees must prepare a written plan to reduce the amount. This too is covered in a management letter and will have a clear audit report yet be a high risk of a contravention the following year.”
SuperConcepts chief executive Natasha Fenech agreed that audit contravention reports are not the only consideration in terms of how compliant an SMSF is.
“There might not be an ACR issued but many funds are still issued with management letters by their auditors, which the ATO never hears about and would assume the fund is OK,” said Ms Fenech.
“It’s not as simple as whether an ACR has been issued when regular touchpoints with SMSF professionals reveal problems before they bubble to the surface,” said Ms Fenech.
Ms Fenech also predicted that the self-assessment approach proposed by the government is “doomed to fail despite the apparent safeguards”.
“The question of eligibility is being hotly debated among our partners, with tax agents telling us that only 30 per cent would be eligible. That’s a lot of work that is likely to add costs to the trustees,” she said.
I am a trustee and given the explained risks associated with 3yr audits I am just happy to go with an audit each year for the peace of mind, and as this is likely to sit well with my auditor perhaps the annual audit fee may not be as high as a 3yr audit fee ?
The proposal is yet another example of Treasury not having any real idea of what is involved in SMSF management. It is again the “theory of everything’. (That would be a great title for a book written by them – they have lots of examples.)
i think you have forgotten that it is the trustees responsibility to have an audit done as prescribed by the ATO. – not an auditor. the auditors task is to carry out the audit. so what’s your problem ?
My belief is you would qualify and contravene all IHA breaches as they are by nature over the 5% threshold?