The Federal Government announced a proposed measure to reduce compliance requirements for trustees of Self-Managed Superannuation Funds (SMSFs) in its 2018-19 Budget, including plans to change the annual audit requirement to a three-yearly requirement from 1 July 2019.
The change would be limited to SMSFs that can show a history of good record-keeping and compliance.
But the changes are unlikely to achieve the stated aims of reducing the compliance burden, according to Pitcher Partners, which provides audit services to about 2,000 SMSFs.
Pitcher Partners Melbourne director Brad Twentyman believes there are better, more appropriate approaches to reduce red tape and compliance costs for trustees. The firm has submitted to Treasury, which is seeking feedback on the plan, that it may be more effective to consider narrowing the scope of the audit, which would achieve the stated policy objectives.
According to the Government, allowing SMSFs with a history of good record keeping the choice to move to a three-yearly audit cycle would have benefits for SMSF trustees, including:
- a reduction in the compliance burden on SMSF trustees while maintaining appropriate visibility of errors in financial statements and regulatory breaches;
- a potential reduction in administrative costs and auditor fees for SMSF trustees, due to less frequent audits; and
- an incentive for SMSF trustees to submit Superannuation Funds Annual Reports (SARs) in a timelier manner.
Mr Twentyman said that while the firm supported measures to reduce complexity and costs for trustees, the proposed move to a three-year audit cycle was unlikely to achieve the desired policy outcome.
“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.
Pitcher Partners maintains a more effective approach would be to allow qualifying funds – those with reasonably straightforward affairs, traditional investment assets and a good compliance history – to reduce the scope of their annual audit.
“It makes sense to reduce the compliance burden on these funds by reducing the scope of the annual audit,” Mr Twentyman said.
“Total costs and fees would be reduced, as is the stated policy objective, and fund members and regulators would receive comfort that governance and management of the fund remained on track each year.
“We think the best way to reduce costs and fees associated with the audit is to reduce the scope of the audit, rather than the frequency.”
Fund auditors would be responsible for determining whether a fund should qualify for a reduced scope audit, using guidance from the Australian Tax Office.
Consultation by Treasury on the three-year audit cycle for SMSFs closes on August 31.