The new Federal Treasurer has been warned that it could take close to five years before a breach is detected in an SMSF under the current proposal to extend the audit cycle to three years.
‘A ticking time bomb’: Fight ramps up against audit proposal
The industry has been ramping up its lobbying effort against the government’s plan to increase the SMSF audit cycle to three years, with BDO partner Paul Rafton warning that the proposal would be a “ticking time bomb” for the industry.
In a letter to the new Federal Treasurer Josh Frydenberg and new Assistant Minister for Treasury and Finance Zed Seselja, Mr Rafton detailed his concerns and called for the new ministers to revisit the proposal.
“Former Minister Kelly O’Dwyer’s proposed 3 year audit cycle might result in it taking up 4.5 years until a breach is detected and at that point where does it leave the trustee and the auditor?” said Mr Rafton.
Speaking to Accountants Daily, Mr Rafton said the firm would continue to fight for the current 12-month audit cycle to be retained.
“In an effort to reduce red tape and complexity, my view would be to stay with the existing 12-month audit cycle, because it limits the risk for SMSF trustees, members and the regulator from potentially falling foul of the rules. An annual review allows irregularities to be identified early and, in turn, issues to be remediated in a timely manner,” said Mr Rafton.
“I concur with comments made by the former ATO assistant commissioner for superannuation Kasey MacFarlane that annual independent audits are the ‘cornerstones of good governance and regulatory compliance within the sector’.”
Further, when asked if the eligibility criteria for SMSFs detailed in Treasury’s discussion paper would help mitigate the concerns from the industry, Mr Rafton was adamant.
“No, the criteria for eligibility for a three-year audit cycle will make a system that that’s not broken more complex and potentially more expensive. Whilst I applaud the former Minister’s intentions to reduce red tape and complexity for SMSF users, I don’t believe the proposed three-year audit cycle will achieve her projected outcomes,” he said.
With the consultation period on the new measure set to close on 31 August, Mr Rafton believes it should be extended, considering the events that have led to a ministerial reshuffle over the past week.
“We recommend an extension of the current consultation period until the responsibility of superannuation is allocated to a minister at departmental level, and that the relevant minister has had appropriate time to review and consider the proposed changes and the submissions from all parties in the industry,” said Mr Rafton.
Mid-tier firm Pitcher Partners have also outlined their concerns to Treasury, with director Brad Twentyman noting that the proposal was unlikely to achieve the desired policy outcome of reducing compliance and costs.
“The nature of audits means total costs are unlikely to be reduced over a three-year cycle, because a three-year audit will still need to be reviewed with the same level of attention as an annual audit,” Mr Twentyman said.
“The broad policy intention of reducing complexity and compliance cost is welcomed; however, the problem remains that when you conduct the audit in year three, you will still have to examine and consider years one and two – it’s just the way audits are.
“The total costs and complexity will not be reduced, just the timing will change.”