Auditors need a shake-up to stay relevant

The truth is traditional audit methodology does not deliver a better quality audit experience. It results in the application of outdated audit procedures that fail to focus on the current risk areas and issues relevant in the digital age.

Best practice in an SMSF audit requires new audit tools specifically designed to address the new risks of the digital environment.

Change is vital if we are to remain relevant in an era where trustees, their advisers and even the regulators are able to access so much valuable information in real time thanks to technology. That means rethinking everything we do. What do we do? Why do we do it? Can we do it better using technology?

If the industry is open to bringing auditors into their systems, real time auditing is a real possibility.

How do auditors add value to the SMSF sector?

Auditors play a crucial role in maintaining the integrity of the SMSF system. Yet many in the profession see the audit role as a low-value statutory requirement.

There is much more to an SMSF audit than the “tick and flick” we are known for:

• Being the only compulsory annual service required by law, we have the highest touch rate on SMSF trustees of any other professional;
• Proactive education of trustees on how to prepare for an audit can significantly reduce the number of breaches, especially for new trustees who may not understand how complex an SMSF can be;
• We report all breaches and issues identified to the trustees regardless of size. This is a vital element of the trustee education process. If a small bank overdraft educates a trustee that a super fund can’t borrow, the chances of a more significant breach of the same rule later is much less likely;
• We educate accountants and administrators on a daily basis. Not all advisers have the technical expertise to deal with all SMSF-related issues and our technical expertise is genuinely valuable;
• Our presence is a significant deterrent to illegal early access and other illegal schemes; and
• We are aware of breaches well before the ATO and can commence rectification work with the trustees to save the ATO delays and additional audit work.

How are SMSF auditors keeping up with modern technology?

This year is shaping up to be exciting as reduced auditor numbers and greater competition for scale is encouraging innovation and investment in audit technology like never before.

Best practice auditing in the digital age requires:

• Online audit technology that delivers all tools necessary to complete efficient and thorough SMSF audits on a large scale;
• More reliable digital audit evidence (data) straight from the source;
• Automated audit procedures and data analytical tools that enable the auditor to focus their attention only on the highest risk areas requiring professional judgement (exception testing);
• A greater focus on auditing the systems and controls relating to the IT infrastructure delivering the data;
• A smarter approach to calculating audit materiality based on specific risk factors relating to the entire engagement;
• The ability to customise audit documentation to eliminate audit testing and procedures that are not relevant to each and every SMSF;
• Clear guidance from the professional bodies on current issues such as relying on electronic signatures and data feeds; and
• Removal of historical audit procedures that are no longer relevant or efficient.

What does SMSF audit look like in the future?

With greater access to digital data, and significantly improved integration of administration and audit technologies, SMSF audit activity will be undertaken in real time.

Auditors will have the ability to audit transactions and significant events as they occur, and report issues as they are occurring to the trustees, their advisers and the regulators for further attention.

With access to real time data, there is no reason why a real time audit cannot and should not occur.

The only way for auditors to continue to remain relevant and demonstrate real value is to sit within the technology system and use their specific area of expertise to add greater integrity to the system as events are happening.

If mum and dad trustee are buying a property, and the auditor is able to audit the transactions as they occur and obtain all necessary audit evidence for the transaction, mum and dad can move forward with running their fund with the confidence of knowing the purchase has been audited and no issues uncovered.

Compare this to mum and dad being told 18 months after the event that the property has failed the audit and now the trustees have to go back and revisit everything they have done.

The quicker an issue can be identified, reported and rectified, the better the outcome for everyone involved.

It’s in the legislation.

SIS Act, section 129, states where the person (auditor) forms the opinion that it is likely that a contravention may have occurred, may be occurring, or may occur, in relation to the SMSF, the person must, immediately after forming the opinion tell a trustee of the entity about the matter in writing; and if the superannuation entity is a self-managed superannuation fund and the matter is specified in the approved form, tell the regulator about the matter in the approved form.

The best way for SMSF auditors to deliver what is required by SIS Act, section 129, is to completely rethink the technology and audit methodology required to undertake our audit testing in real time.

By Jo Heighway, Partner, Deloitte