ATO assistant commissioner Kasey Macfarlane says low-cost audits provided for a fee below $400 have been a key area of focus for the tax office in the 2016-17 financial year. She said the ATO has conducted several activities in relation to these audits.
“In a portion of these cases, there have been some concerns that have been revealed and we have reviewed some of the activities of those auditors providing those low-cost audits,” Ms Macfarlane said.
“[In some cases], we’ve found that auditors have failed to conduct an adequate audit that complies with the auditing standards.”
Ms Macfarlane said some of the low-cost audit providers had failed to complete a written audit plan, compliance check lists or trustee representation letters.
“In other cases, the auditor had breached independence requirements because they prepared financial accounts for some of their SMSF audit clients,” she said.
In other cases, auditors failed to verify fund assets and verify the terms and structures of limited recourse borrowing arrangements within particular SMSFs.
In one particular case, Ms Macfarlane said the auditor had failed to retain documentation in accordance with the auditing standards, and failed to identify and report two material contraventions to the ATO as required.
“That auditor had also not completed their required continuing professional development,” she said.
Ms Macfarlane said there are a number of cases still under way, where the ATO is undertaking further investigation.
“There are likely to be several referrals to ASIC for further action and another smaller group warrant further review and possible referral to ASIC,” she said.
“We also have another group flagged for follow-up to check some of [the] issues that we have identified that have been satisfactorily addressed.”
Ms Macfarlane stressed that there are still plenty of examples where audits were provided for a low fee, but the audit was performed to a high standard.
“They might only do a small number of audits for SMSFs with very simple affairs, and they might do that as part of a home business so their overheads are a lot less,” she said.
Ms Macfarlane said automation might also help to bring down the cost of an audit.
“Our review has only highlighted concerns in a portion of low-cost audits, so I just want to highlight that it’s not a widespread systemic issue that we’ve found,” she said.
We have just got in today’s post a letter offering SMSF Audit Services for $330 including GST, regardless of size or complexity. How is this possible !!
Since when is it the regulator’s job to dictate how much an independent practitioner should charge for their services? Surely that’s up to them, and the price will be based on their own particular business model.
If they operate from home with software to automate much of the process, and maybe an assistant to help with the paperwork, then overheads will be pretty close to NIL. On that basis, 500 Funds at $400 each is a pretty good little business. That’s more than I’m taking home!!
Underlying cost structures that allow audits to be done cheaply suggest slave wages, corner cutting reviews, investment in technology as part of substantive critical mass or a generic offering. A very big range of reasons which suggest the dollar of the fee is no indicator of the level of audit competence.
The fee in isolation as an indicator is simply incorrect and creates a lot of misinformation. There is a basic matrix used which includes generic structure with comprehensive shared reports, auomatically updated platform administration with live data feeds, type of investment and quantum, no of members, no of pensions, allocation of costs between accounting, tax and actual audit work. The net result of the above is that it is a minimum $2k p.a. for an SMSF for all of these functions but it may be separately allocated under different headings. The upper limit amount could be anything depending on the fund overall. The average overall fee/cost of compliance is probably between $2k and $5k p.a.
A single property holding SMSF is likely $3k p.a. with an increased cost for any gearing being accounted for and documented each year as to complying reductions.
George, it’s dangerous to assume gender now days. Possibly having a bet each way?
I am a little confused. The ATO person is first referred to as a “he” but then is referred to as “Ms”. This person can’t have it both ways. In the first instance he/she intimates that all cheap fee audits mean that the auditor is inefficient and then later goes on to say that a cheap (less than $400) fee does not necessarily mean a bad audit. Talk about double standards! May we ask for clarity and consistency? Disclosure: I am not an auditor. I am an accountant in private practice.
It’s about bloody time the ATO and the ASIC look into this. $400 for an audit? Pfffff. 🙄