Audit proposal to see harsher penalties, increased fees
The proposal to extend the SMSF audit cycle to three years for those with a clean history continues to cop backlash with the extension in time predicted to result in harsher penalties for unintentional mistakes, and higher fees in some cases.
Speaking to SMSF Adviser, BDO national leader, superannuation, Shirley Schaefer said there are plenty of SMSF trustees who make mistakes unintentionally despite having the best intentions, and where these mistakes can be identified and rectified promptly, the ATO is likely to take a more reasonable view around penalties and sometimes remit them.
“If we go to a three-year cycle, it could be three or four years before any mistakes are found, and so because it's a strict liability provision, penalties are imposed, and the ATO might not be inclined to remit penalties if it's gone on for three years. Their view will be well the trustee is responsible, they should know what is going on and that's fair,” said Ms Schaefer.
“If things are fixed promptly the ATO is more likely to show them some contrition, you get a much better result, but if things have gone on for too long the ATO tend to say well you need to be penalised.”
Ms Schaefer also pointed out that some trustees already struggle to find documentation from 12 or 18 months ago, or remember what actions they did or what certain transactions are. Increasing the time period to three years will only make this worse.
“If they can't find it now, how are they going to find it after three years?” she said.
“If there's been a mistake, then potentially there will be increased audit fees as the auditors will have to dig down further to get to the bottom of it. There are fees to rectify it as well, which could be more the longer it goes on, it just doesn't seem to make any sense to me.”
Tactical Super director Deanne Firth said the first thing auditors do when they receive the financial statements is compare the prior year figures to the prior year audited financials and make sure everything carries forward correctly.
“Currently an SMSF is audited under the Australian Auditing Standards. These standards do allow for instances where you have not been provided with the prior year audit. You have to do additional testing on the opening balances,” she explained.
“Consider two risk areas, the cost base and member components. Without an audit of the prior two years' financials we can’t ascertain whether those components are correct unless we do additional testing on the prior year’s figures, basically resulting in an audit of the financials since the last audit. Unless we complete this additional work we couldn’t sign off on the audit under the Australian Accounting Standards.”
Ms Firth said it is also likely to lead to a greater administration cost to the ATO as they will need to keep track of the audit of each fund that is due, and which SMSFs are on the “good list or the naughty list”.
“How much will the SMSF levy be increased by to cover this cost?” said Ms Firth.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.