A low-cost and ‘one size fits all’ SMSF audit fee business model uses low profit margins to attract volume, according to director of SuperAuditors Shelley Banton.
The ATO is targeting low-cost SMSF auditors, she said, suspecting the high turnover of work means they do not examine contraventions closely enough.
“With trustees now personally bearing the cost of ATO penalties, a low-cost SMSF audit today may not be a low-cost ATO SMSF audit tomorrow,” Ms Banton said.
“SMSF auditors… price according to time. Unfortunately, there’s no such thing as a standard fund. So how can it cost the same to audit a fund with a limited recourse loan borrowing as it does for a fund with a single bank account? It can’t. No matter what technology they’re using, or how much work they’re doing, it’s a loss leader,” she said.
Also, accountants usually establish a relationship with an SMSF auditor, Ms Banton noted. If a fund is audited by the ATO and the outcomes are adverse for the accountant’s client, the accountant could face a professional indemnity claim.
In addition, the trustee would have recourse to the accountant since they relied on the accountant’s advice to engage the auditor in the first place, Ms Banton said.
Ms Banton noted that the ATO is actively trawling social media sites for information on low-cost auditors providing “easy audit outcomes” and data matching SMSF auditors with the number of ACRs they lodge and their audit fees.
“If these factors trigger an ATO review of the SMSF auditor’s files, that low-cost SMSF audit could end up costing both the trustee and accountant a lot more,” she said.
Etax would be awesome for SMSF – but don’t limit it to funds in pension! There are plenty of funds in accumulation phase who only have shares and cash (mine included).
Why the blazes can’t the ATO set up an Etax alternative for simple SMSF funds totally in pension mode which have paid the correct % pension for ones age & is prepared to have only cash in banks or shares through say Commsec. We’d just have to sign a form & wait for the total imputed taxes to be sent to us as our refund. No advisers no accountants, no auditors, no BS, no problems
[quote name=”Charlie3″]Gary, I agree as an accountant who does their own SMSF financials. However the ATO supervisory Levy and the actuarial certificate are also a compliance cost each year and[/quote] I DID NOT TYPE THIS> THERE HASS BEEN A STUFF UP >>> JOHN G
WOW! This has certainly created interest. I note Gary’s point but it is more than that. The sad reason is that the ATO doesn’t have the resources to do audits so they have appointed accountants to do it. An audit is (should be??) a deterrent against doing irregular things like lending money to associates etc. Gary, if all trustees did the right thing there would be no need for audits and the ATO would be happy that funds did the right thing with compliance. Unfortunately some funds (a miniscule amount) don’t do the right thing and spoil it for the rest. Sort of like having to drive at 40kph past a school which is located on a freeway because some fools did the wrong thing, drove faster and created issues. It is easy for the regulator to tar everyone with the “you are guilty brush rather than weed out the bad guys.
Manoj – I’m a geologist not an accountant. And I take pride in making sure everything in my fund is right.
I pay for an audit because I am required to pay for an audit, there is no other reason. I see no value in the audit.
Karen – other businesses have credibility without regular audits, and some audited businesses are/were not credible at all. And if I think about it I am sure there are plenty of Australian companies the same. Audits achieve nothing.
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Gary, Charlie 3
After being over two decades in SMSF space – it gives me goose bumps to think of lodging annual return of an SMSF belonging to an accountant, without an audit.
Quality of auditors on one side, but i have seen some shocking operating statements, for example share losses being offset against contribution income. As far as compliance is concerned -I am sorry to say, a plumbers home is most likely to have leaking taps and the worst compliance of SISA and SISR can only be notoriously done by those who have half knowledge of rules….
One of them told me that he has purchased gold bullion with SMSF money and had none to show me (most likely sold to pay off his own home loan). God knows how he lodged as I refused to issue a clean report without a contravention.
SMSF audits are necessary to provide credibility and the comment about not stealing money from yourself is naive. There are always people that come across difficult situations that see the SMSF funds as an easy loan.
I disagree with the low cost means high risk. Funds we send to our auditor, we have already prepared very good workpapers and if there is a potential issue we flag it & have already commenced working with the client to fix it. I’ve dealt with much more expensive auditors that wouldn’t know the legislation if they tripped over it. So price does not always equal quality.
And accountants that are waiting for the auditor to catch compliance issues or hiding them so they are missed shouldn’t be preparing SMSF returns in the first place.
We have been able to keep our prices low because we use an online SMSF audit software which does most of the financial audit for us like checking closing share prices, dividend income etc and issues reports, invoices etc. It stores all the funds documents prepares our working papers with one click of a mouse which i am sure other auditors take hours to do.
Each audit is done of the highest standard possible with a set procedure for review and quality control etc.
This competitive advantage alone means we can be highly competitive and seem like low cost to many without sacrificing quality. So I am not sure what Ms Banton is bragging about – She is better than others because she is expensive.
Ben – that may be the case, however auditing is of no benefit to trustees unless they relinquish control to someone else.
Personally I’d rather not have a portion of my income sequestered for 40 years before I can use it, and particularly if the government keeps changing the rules. I’d rather pay off my mortgage. It’d be a way better investment plus the government won’t have 30 years to change the rules before I get to use it – only yesterday there was a news report that was suggesting people could be denied access to their own money for another 10 years in order to “save” the government money.
It’s a commercial decision on the part of the auditor. I know of an SMSF auditor who charges a minimal fee. He operates from home and his overhead expenses are low; so he is able to pass on the savings to his clients. Low cost does not necessarily mean low quality.
Gary, smsf audits help to provide credibility to the superannuation system as a whole.
Expecting 100% of trustees to know all of the rules (In-house assets, pension calcs, compliant deeds, valuations etc), and to never (deliberately or accidentally) do the wrong thing is too dangerous.
There are massive $ tied up in SMSFs. The last thing our society needs is a loss of confidence in the pensions, contributions, market values etc tied up in these funds. Your audit fee is part of the big picture, giving the govt/ATO and law makers confidence in this ever-growing industry.
Charlie3, You are quite correct about the supervisory levy. I forgot about it since I don’t pay a separate invoice thanks to it being sneakily added on to the tax bill. And just like the audit there is no benefit for the fund. I’m in accumulation phase and will be for some time, no need for an actuarial certificate.
That you need to audit your own money still blows my mind, you’re hardly going to steal from yourself! Yes, I did know about it before I started the SMSF, but I can still resent paying it every year! Still beats the hell out of paying someone to lose my money.
Gary, I agree as an accountant who does their own SMSF financials. However the ATO supervisory Levy and the actuarial certificate are also a compliance cost each year and
As a SMSF Trustee who does everything himself I can categorically state that the only reason I get an audit is because I am required to. The audit, along with the company renewal fee for the corporate Trustee, are the only compliance costs except for my time and a bit of stationery.
The cheaper the audit the better the audit in my opinion.
Shelly
There is a lot of strength in your comments – but as we cannot put all the funds in the same basket – we cannot put all the auditors in the same basket.
For instance, there could be a semi-retired auditor charging out at $20 per hour and spending 10 hours to audit the fund and have done a very good job due to his vast experience in this area. Whereas there could be schmuck fresh graduate with no experience charging $200 per hour – who spends only an hour.
So which auditor is better – “Price” should be the last determinant
I think the skeletons are hidden in accounting firms where there are two or three partners – where one partner audits only their own funds – you, me & ATO know that this can be fixed only once APES 110 is fixed.
BTW, there is no audit work available, does not matter how low you go – as partners of these firms will sign these reports in-house for as long as they can.
low cost smsf audit risk
I have contacted two of the more expensive auditors about a SMSF audit and didn’t get a reply from either of them. The low cost auditors did reply so I’ll be using one of those.
What a load of codswallop. I have now had 2 funds audited by the ATO (both have $5 million is assets)and both were found to be 100% in order. The audit fee was $390 for each. The reason for the very reasonable fee? The auditor was given everything he needed, the working papers were easy to understand and the deed and rules were totally up to date using Super Central as the provider. Just because it is a low fee doesn’t mean that the auditor hasn’t done a proper job. And the reverse applies: if the fee is large it doesn’t mean a good job. An auditor can charge what he/she feels is reasonable.