Powered by MOMENTUM MEDIA
Subscribe to our newsletter SIGN UP
Eligibility for three-year audit measure criticised

Eligibility for three-year audit measure criticised

The proposed eligibility requirements for the three-year audit measure could increase the risk of contraventions as these ignore compliance concerns outlined in auditor management letters, say SMSF professionals.

SMSF Miranda Brownlee 04 September 2018

In a submission to Treasury’s consultation on the three-year audit measure, Tactical Super director Deanne Firth said that adopting the definition of a “clear audit report” as the criteria for determining whether an SMSF trustee should have to undertake an annual audit or is eligible for the three-year audit measure is problematic as it ignores certain compliance steps that may have been missed by the trustee.

The government released a consultation paper detailing proposals for the eligibility criteria in early July.

While the paper has proposed that eligibility be based on self-assessment by the trustee, it says that where the ATO becomes aware that the SMSF trustee has failed to submit an SMSF annual return (SAR) in a timely manner or has failed to procure an audit in a year of a key event, the ATO will notify the trustee that an audit is required.

In her submission, Ms Firth said this ignores the fact that auditors deal with certain compliance issues in the management letter they send to clients.

“A lot of minor or immaterial items are dealt with in the management letter to the client. These are essentially advance warning that a trustee is not fully comprehending their responsibilities or taking the correct steps to safeguard either the investments or fund,” the director explained.

If a fund has not taken the minimum pension payment, for example, but the underpayment is less than 1/12th of the minimum pension, they have the option of a one-off exemption where they can self-assess and do not need to notify the commissioner, the director noted.

“If a clear audit report is the criteria, then a fund in the above situation could move to a three-year audit cycle even though they are at higher risk of having a pension shortfall situation in the next year and overclaiming their exempt current pension income,” the submission stated.

“Another example is in the in-house asset provisions under SIS Act section 82. If the market value of the funds’ in-house assets exceeds 5 per cent, the trustees must prepare a written plan to reduce the amount. This, too, is covered in a management letter and will have a clear audit report yet be a high risk of a contravention the following year.”

SuperConcepts chief executive Natasha Fenech agreed that audit contravention reports are not the only consideration in terms of how compliant an SMSF is.

“There might not be an ACR issued, but many funds are still issued with management letters by their auditors, which the ATO never hears about and would assume the fund is OK,” Ms Fenech said.

“It’s not as simple as whether an ACR has been issued when regular touchpoints with SMSF professionals reveal problems before they bubble to the surface,” Ms Fenech said.

Ms Fenech also predicted that the self-assessment approach proposed by the government is “doomed to fail despite the apparent safeguards”.

“The question of eligibility is being hotly debated among our partners, with tax agents telling us that only 30 per cent would be eligible. That’s a lot of work that is likely to add costs to the trustees,” the CEO said.

Eligibility for three-year audit measure criticised
accountantsdaily logo
SMSF
FROM THE WEB

Latest Opinions