Limited cost savings from three-year audits

The shift to three-year audits for some self-managed super funds (SMSFs) would not produce significant costs savings for trustees, said SMSF Association CEO John Maroney.

“Our analysis leads us to believe that the costs and complexity of creating and implementing the proposed triennial audit for eligible SMSFs would outweigh the benefits provided to the SMSF sector, as well as pose potential integrity risks.

“We believe any cost reductions for SMSFs trustees would not be substantial and would not justify the increased complexity and potential integrity risks for individual SMSFs as well as the broader sector.

“We also believe that there may not be a significant take-up of the proposed triennial audit by SMSF trustees as our research has shown that many SMSF advisers may recommend that their clients undertake annual audits to ensure their fund is compliant.

Maroney was commenting on the Association’s 18-page submission to The Treasury’s discussion paper, “Three-yearly audit cycle for some self-managed superannuation funds”, initiated in the wake of the Government’s 2018 Budget proposal to allow three-year audits for some SMSFs. The Association recommended the Government should reconsider introducing the proposal.
Maroney said a survey of Association members revealed 89% opposed three-year audits, 86% believed it would not reduce costs, and 84% said they would recommend their clients continue having annual audits and not make use of the proposal.

“In most cases, our members conveyed the notion that SMSF audit fees may in fact, increase. Auditing three years’ worth of information may not create the desired amount of efficiency because auditors and trustees will lose familiarity with the fund. This would result in further complexity in auditing, confirming and validating transactions that have occurred up to 36 months’ prior.

Consequently, we believe that this proposal may increase the time spent by auditors, trustees, and SMSF professionals when conducting the audit, particularly when obtaining historical
documentation and details for prior years.

“There are also legitimate concerns that reducing independent oversight would potentially undermine the integrity of the SMSF sector and minor compliance breaches may become more difficult to rectify.”

Other issues with three-year audits the Association raised in its submission to The Treasury include:

  • The proposal would impact SMSF audit businesses and may reduce the quality of the SMSF audit workforce, affecting the quality of independent oversight of the SMSF sector;
  • Eligibility criteria using “triggers” to require annual audits may make the current compliance system for SMSFs more complicated and outweigh any red-tape reduced by three-year audits.

Maroney says that if the Government does choose to proceed with this proposal, the Association strongly suggests that it considers a simplified, principles-based eligibility test and requires SMSFs using a three-year audit cycle to have a “light-touch” compliance check in the non-audit years.

“We would also suggest an appropriate transition period to three-year audits is needed if the proposal is to be implemented.”