The million-dollar question for most accounting firms right now is: Should our firm stay in, or exit, the SMSF auditing space?
Deciding whether to continue or cease offering SMSF audit services is arguably the biggest question accounting firms need to consider to meet the upcoming SMSF independence compliance changes. Interestingly, we’ve seen many firms that have started out thinking they wanted to stay in this space and, over time, through an internal due diligence process, conclude that they actually don’t — and vice versa.
With the 30 June compliance deadline being only weeks away, we strongly urge accounting firms to be proactive about becoming SMSF independence-ready now and not rely on the good nature of, nor expectations that, the ATO will indefinitely extend deadlines. On this note, we suggest accountants resist the temptation of kicking the can down the road and act now.
If you decide to retain in-house SMSF auditing, we encourage you to assess the estimated net financial impact, associated risk of future litigation, ATO scrutiny, professional QA reviews, and mandated CPD training for staff wanting to retain an SMSF auditor’s registration under ASIC.
Conversely, should you decide to outsource SMSF auditing, it’s critical to align with an appropriate organisation. Here are some areas compiled to help select the right outsourced partner:
1. Preferred type of external SMSF auditor: There are three main options: use a specialised SMSF audit firm, use another business services practice with no referral arrangement or become involved in an SMSF audit pool. It is worth stressing that the ATO’s current position seems to be that while SMSF audit pools are theoretically possible, they strongly suggest that it would be very difficult to overcome the inherent risks. We believe audit pools will only satisfy APES110, where the number of firms participating in the pool is very large, diluting the perceived negative impacts of issuing an adverse audit finding.
2. Costs and fee schedule: While accountants will be seeking to obtain the best value for their clients, they should also have a healthy degree of skepticism for very low audit fees, as the adage of “you get what you pay for” is a universal principle. It’s also worth noting that the ATO has identified low audit fees as a compliance risk area, raising the possibility of a review.
3. SMSF competence and experience: The SMSF knowledge and experience of SMSF auditors vary greatly and the impending changes are likely to attract new accountants to the industry. Many of these will have limited SMSF audit experience, possibly just over the minimum required by ASIC.
4. Ability to provide SMSF technical advice: Many SMSF auditors have significant experience with the SIS Act and corresponding compliance. Using an external SMSF specialist as a “sounding board” to effectively run scenarios and prospective transactions past and before it occurring can be invaluable and significantly adds to a firm’s SMSF offering. Prospective SMSF auditors should be queried on their willingness and capacity to field queries relating to SMSF compliance.
5. Number of external auditors: It may be prudent to use multiple SMSF auditors instead of just one. While there are efficiencies in using just one, having several options does allow a firm flexibility if one auditor’s quality dropped.
6. Proximity of auditors: Having an auditor working close by may allow for physical meetings with clients/staff and may also allow for paperwork to be easily transferred (if not done electronically). It does, however, raise strategic and client retention concerns if the SMSF audit firm also engages in similar business services to the firm.
7. Location of audit staff (Australia v overseas): Many firms are reluctant to use offshore accounting and audit services based on competency and privacy. This should be thoroughly investigated prior to engagement.
8. Use of IT and web-based platforms: The degree to which a prospective SMSF auditor or audit firm has embraced technology will have an impact on the referring accountant. Failure to have a web portal and client management system (CMS) may result in additional work and time involved in getting audit jobs completed. Most specialised SMSF audit firms use a client portal to streamline document uploads and enhance visibility to tracking engagements.
9. Scalability and capacity: Question whether the audit firm has the capacity to accept new SMSF engagements and actually do the work in a timely basis. This will become more relevant in the coming months as SMSF audit firms become booked up. Also, question whether the audits will be done on or offshore to ensure you’re comfortable with the respective process.
10. Ability to trial the auditor: Several SMSF audit firms offer a “road test” of their services, allowing a prospective client to have several SMSFs audited at concessional rates. This can greatly assist a firm in evaluating the auditors’ competency and efficiency and see whether they would be a good fit for their clients.