Avoid cheap SMSF audits which can cost a lot
IT'S THE time of the year when the nation's one million DIY fund members generally get around to doing their returns.
As part of that process you must have your accounts audited.
But how much do you pay? If it's more than $2000 you are in a select group of less than 3% of all SMSFs.
In fact, if you are in that group the assumption might be made that your fund is pretty complex and you have a good idea of what you are doing. It is the other end of the spectrum that causes concern.
If you are among the one-in-three getting your fund done each year for a couple of hundred dollars, are you really getting value?
Tax commissioner Chris Jordan said earlier this year that the tax office identified several problems with audits being done by auditors who charge less than $400.
The ATO found corners were being cut, some auditors not having a written audit plan, representation letters not being obtained from the trustee, and, worse still, some auditors failing to conduct an adequate audit that complied with standards.
The cost of an SMSF audit will depend on factors such as the number of investments held, the complexity of the investments, whether the SMSF is paying a pension, and whether the SMSF has members both in accumulation and pension phases.
Most audit fees range from $700 to $1000.
The fees do not include preparation of the SMSF's tax return.
You need to distinguish between audit and fees charged by an accountant for the preparation of your tax return.
These must be conducted by two different people. An SMSF audit must be done by a person who does not hold any financial interest, or have a close relationship with members of the SMSF and who also did not prepare the SMSF financial accounts.
When selecting an auditor, you should inquire as to who will do the audit.
A good quality SMSF audit should provide trustees with value for money where:
- The auditor is independent;
- In conducting the audit the auditor uses a high level of professional judgment combined with good audit technology;
- The audit approach is customised for the specific risks relevant to the SMSF;
- The auditor provides a detailed management letter that not only notifies the trustees of their findings but contains recommendations for any rectification action that is necessary; and
- Trustees can contact the auditor directly at any time.
In the year ended June 30, 2015 the average audit fee was $754 and the median was $550.
Remember the basics - your SMSF auditor must be a person who is registered with the Australian Securities and Investments Commission and they must have completed the minimum competency requirements in order to conduct SMSF audits.
Auditors registered with ASIC are issued with an SMSF auditor number, which must be included on your SMSF's annual tax return.
Your auditor's job is to examine your SMSF's statements and assess compliance with superannuation law.
Your auditor will advise if there are contraventions. Then depending on the contravention type, your auditor may be required to report the contravention to the tax office.
I would advise SMSF members to avoid cheap audits, as a good auditor can save you money by identifying mistakes quickly so you can rectify them sooner rather than later.
The cheaper option may save you money in the short term, but if the audit is not carried out correctly it could cost you more in the long run.
Monica Rule is an SMSF specialist and author of The Self Managed Super Handbook. www.monicarule.com.au