The outdated method of requesting and receiving bank audit confirmations (BACs) has many SMSF auditors and accountants questioning their worth.
Some banks and financial institutions take forever to respond, while others get the information back to you before you can make a cup of coffee.
In a world where SMSF auditors either receive electronic bank statements directly from SMSF trustees or just review online data feeds (which apparently aren't all that reliable), BACs provide comfort that:
- The bank account has been set up in the correct trustee’s name as the beneficial owner for the fund
- No encumbrances or liens exist on the account
- No prepayments have been taken out of a term deposit
- The fund has no additional bank or term deposit accounts
- The end of year balance is correct.
- Things are now set to change however and not necessarily for the better.
New technology is now being used to give SMSF auditors and trustees a more streamlined and efficient experience.
Some of the larger banks have started to outsource the BAC process, using a third party to manage and maintain this function.
While it will be a boon for corporate audits, here are four ways it will hinder SMSF advisers.
Under the new model, trustees will pay the online service provider US$23 (around AU$30) per request, along with bank fees that can be up to $70. Requests can confirm up to three bank accounts/term deposits held at the same bank. However, as trustees shop around for the best rates their investments are often at different banks.
Being charged an extra $30 for each request is something SMSF trustees simply won’t tolerate.
Additional data gathering
SMSF advisers will also need to provide the email address of at least one SMSF trustee for each fund for authorisation purposes. (Signed copies of authority to obtain information forms provided by trustees will no longer be acceptable.)
Auditors and advisers alike will now need to spend even more time gathering information for the SMSF audit — time that can’t be recouped. Given the costs involved, the trustees probably won’t respond to the email and give online approval anyway.
Effect on SMSF industry
While streamlining BACs will improve productivity for corporate audits, it will have the opposite effect on SMSF audits.
The BACs themselves will also change completely.
At the moment, banks are still accepting fax and email BAC requests from SMSF auditors, presumably because they’ve just started moving to the new system. However, some banks have hinted that online confirmations will soon be the only acceptable method of requesting BACs. (According to the Australian Bankers Association, some have already reached this point.)
And when the rest of the banks follow suit, SMSF advisers and their clients will vote with their feet by switching to SMSF auditors who don’t request BACs.
As SMSF legislation evolves, the ATO, ASIC and professional accounting bodies demand higher standards from trustees and SMSF professionals. Given the risk of a potential professional indemnity claim, requesting BACs may prove to be a less expensive option.
Cutting red tape
Requesting a BAC isn’t compulsory. However, paragraph 13 of the Auditing and Assurance Standards Board’s Guidance Statement GS 016 indicates that the auditor would ordinarily request a bank confirmation(s) where banking activities:
- are significant, complex, or unusual
- may impact on the assertions or disclosures regarding the banking activities
As we’ve already discussed, they also provide other benefits.
One thing’s for sure: it’s hard to maintain a quality SMSF audit service and stick to auditing standards when you don’t have any clients.
Will this have any effect on auditing standards? Will SMSF auditors risk not requesting BACs to placate their client base? Time will tell.
The real question is how SMSF auditors will document that risk.
Price-sensitive SMSF advisers will quickly switch to SMSF auditors who don’t request BACs to save money. And who can blame them?
Unfortunately, if or when SMSF auditors stop requesting BAC confirmations, SMSF advisers and trustees will be the losers.
We need an acceptable alternative to requesting time-consuming and costly BACs. One that doesn’t involve implementing a new system that drives the industry away from the current status quo. (Keeping the current system for those times when it’s more cost-effective to use would be a start.)
Let’s keep the discussion going and see if we can find a solution where everybody wins — especially our SMSF clients.
By Shelley Banton, director, SuperAuditors