Note: Every year, the ATO publishes the average audit fees incurred by SMSFs. This Q&A contains data for financial year ending 30 June 2010 (latest available as at May 2012). The next update, for compliance data up to 30 June 2011, will be available in April 2013.
Q: SMSF auditors and administrators are charging rather high audit fees, perhaps because of the mandatory nature of these audits. I have also noticed some online SMSF administrators, including one that flatly refused to provide me with the name of their auditors. It cost me over $2,000 last year for my super fund’s audit and income tax return that is in the accumulation phase, and holding just over $200,000. That’s 1%, just for audit and the ITR. I have done some research but it seems cheaper options are not all that transparent. I have spoken with a number of SMSF trustees and I have discovered a range of concerns about the mounting costs of audits for smaller SMSFs.
A: Ah, you have tapped into a hot topic in the SMSF world. Yes, an annual compliance and financial audit of your DIY super fund (officially known as a SMSF) is a compulsory requirement and costs can vary between providers.
The cost of a fund audit for a DIY super fund can depend on many factors including the following:
- complexity of the super fund
- number of members
- number of investment strategies
- number of transactions
- complexity of investments
- whether the super fund is in pension phase
- whether the fund has members in both accumulation and
- whether the trust deed has been tailored for the specific needs of fund members.
You are right to be asking questions when you’re not sure about the cost of the service that you’re receiving. If a SMSF provider is not willing to provide the information necessary for you to make a decision, then don’t use them.
If you are concerned about how a SMSF auditor is charging for the service, you can also pass this information onto the ATO. I am also interested in hearing from other readers about the costs of running a SMSF.
I can offer you two reference points for you compare your SMSF audit costs with those costs incurred by other SMSFs:
- Analysis based on 25 SMSF service providers
- Statistics released by the ATO on SMSF audit costs
Based on the research of 25 SMSF service providers that I conducted when writing
A fee of $2,000 for the audit and
The ATO has also published some interesting data on SMSF audit fees which may help you assess your SMSF’s audit costs. In the table below, you can find the average and median audit fees reported in the 2010 SMSF annual return. A median is simply the middle figure in the complete range of costs from highest to lowest. The average is the total audit costs for all SMSFs divided by the number of SMSFs who lodged the 2010 SMSF annual return.
It is important to distinguish between the fund audit, and the preparation of fund accounts and lodgement of the income tax return. Note that the costs outlined in the table below do not necessarily include accounting fees for non-audit work.
Note: Two different averages and two medians are included in the table to highlight that those auditors who provide other services to a SMSF, generally charge higher audit fees. Although the total average audit fee is $607, for those who receive other services from their SMSF auditor, the average audit fee is $882.
| SMSF audit fees (for year ended 30 June 2010) | ||
| Auditor provided other services | Average audit fee | Median audit fee |
| Yes | $882 | $550 |
| No | $571 | $468 |
| Total (overall average) | $607 | $490 |
Source: Self-managed superannuation funds: A statistical overview 2009-10
In response to many requests from readers, we have launched our SuperGuide Directory which includes many listings from SMSF service providers, such as SMSF auditors. The main SuperGuide information site also provides plenty of interesting articles, and questions and answers on SMSFs, including a DIY super section in our free monthly newsletter (click here to subscribe).
You can also check out my book, DIY Super For Dummies, 2nd edition (Wiley) which covers nearly (!) everything you need to know about starting and running a self-managed super fund.
Like so much in the financial services area, costs for accounting & audit for SMSFs are way too high. The ATO should help us find cheap options because they make the audit mandatory. Having said that, it IS possible to get an audit of an SMSF, even with many share transactions, for under $400. Packages like BGL’s Simple Fund (about $375) will allow you to easily do your own accounts, and then it does not matter if you have hundreds of trades a year. A lot of auditors also use Simple Fund, and are familiar with the financial statements it produces. It just comes down to being organized, and keeping minutes (just a diary actually!) and regularly entering the trades as they occur throughout the year.
Like you David, I am doing the bookkeeping for our SMSF. Using spreadsheet, it doesn’t take much of my time at this stage, as the transactions involve only employer’s contributions. A friend referred an account to us to audit our SMSF. He has been very helpful. He didn’t want to charge us for our first tax return, because our SMSF just started, it had less than 10 transactions and no income yet. But I know soon or late we must pay for his service. Knowing what is a reasonable charge helps me to evaluate what we owe him.
Hi
I have my own super fund and when it came to the end of the year I was supposed to withdraw $6,544. I only withdrew $6000 and can catch up this year. Is this a reportable breach to the Tax Office?
Hi J Mitch – I’ve answered your question here:
http://www.superguide.com.au/diy-superannuation/smsf-pensions-what-happens-if-i-don%E2%80%99t-withdraw-the-annual-minimum-pension-payment
Regards, Trish
In response to your question of audits being too expensive it does come down to the size, investment types and nature of the fund, if you have 50 investments and 3 wrap accounts in your fund you can not expect the audit to be done for $200. However, the amount you paid for your $200 000 fund is expensive in my opinion but you also must keep in mind that auditors also have professional indemnity insurance that is also on the increase as well and this also can attribute to higher costs in some cases. Trying to keep it short here I know that you are able to get an audit of an SMSF for approx $500 as this is the average price that we charge for our audits. Just trying to keep the perspective of the auditor here. Thanks
I am prepared to pay $500 for the audit of our SMSF.
My son and I have setup SMSF Feb this year, and we have only 4 transactions that are all members’ contributions; with a total balance of less than $900, I don’t think it is justifiable for a $200 audit fee!
Given the popularity of SMSF, the ATO is understandably putting heavy reliance on auditors to provide that assurance (as well as the eyes and ears) on compliance of SMSF’s. However, I do wonder, in the “interest of keeping the cost of business down” if there should be a swing back to the sampling audits of higher risk SMSFs such as during the pension phase instead of during the accumulation phase (as this original post is at). Or at the very least, have a two-staged auditing compliance requirement that differientates between funds that have payouts to members and in-specie transactions, and those who are just accumulating AND have low value (perhaps <$100,000).
I have just been engrossed on reading the duties of a trustee for SMSFs as I'm just preparing ahead for to set up my SMSF. I'm sure I can perform better than my institutional trustees based on their average performance in the last 5 years, but I given I am accumulating only (less than 35 yo here), I dont think I should have to sustain what would represent a 4% charge on the total value of the fund in terms of mandatory audits. Perhaps an e-Super for low risk SMSFs Mr D'Ascenzo?
Matt Williams – we need more auditors like you – service at a reasonable price.
Reading these replies, there is a big understanding gap.
The reason for the audit, is for prudential reasons, including protection of tax revenues — as the income of the fund is taxed at 15% — and ensuring that funds are indeed put away for retirement and not accessed earlier by the trustee.
So it doesn’t matter if it is a $900 fund, a $200,000 fund or a $2m fund. In fact, research has shown there is a higher risk of incorrect use of smaller value funds, and newly registered funds from APRA and ATO research and reviews. Areas like illegal early access schemes and the like are quite common.
Unfortunately most of you will probably not like what I’m going to say.
I am an SMSF auditor. The burden placed on auditors is large. WE get into trouble if we get it wrong. There are procedures to follow that are placed on us by the accounting bodies that we are members of and by the ATO being the regulator of SMSF’s. The ATO is becoming increasingly concerned with the quality of Audits being done so the ATO are not only watching the trustees, they’re watching the auditors as well. Naturally, this makes auditors even more nervouse. I urge all trustees to research the actual roles and responsibilities of auditors and what they must do for EVERY fund whether it’s got a $1000 dollar balance or whether it’s got a $1 million dollar balance. Costs are only going to go one way I’m afraid – up. Trustees need to do their own cost benefit analysis of their funds to decide whether its worth them keeping an SMSF open – I certainly would not with a $900 balance unless I had plans to quickly increase that by rolling over from other funds.
Jing, I have to agree with Stephen – 900 would not even cover the audit fee. I am also hunting around for a value for money smsf audit – seeing prices from 500 – 1500. on with the hunt !
The $2k cost of accounting, tax and audit for an SMSF seems too cheap and at 1% of total fund balance it is cheaper than an industry or retail fund. You get what you pay for and if you think an audit can be done properly and accurately for less than $500 your kidding yourself. But then again people that dont value the audit & regulatory requirements the auditor must follow probably shouldnt have a SMSF because they probably dont appreciate the responsibilities they as trustees have. It is this end of the market that the ATO & ASIC need to focus their audit activity on. We along with the ATO dont recommend anyone sets up an SMSF unless they fully understand their responsibilities, role and the importance of the super funds. The ATO also have a minimum fund balance of approx $250k before setting up an SMSF.
At the end of the day a smsf is only appropriate for those with higher fund balances. These costs as a percentage of the fund are therefore a lot lower. When deciding on establishing a smsf trustees must way up these cost to decide whether having their super within a smsf is appropriate.
The only person to blame for the sky rocketing costs of SMSF audits is the government. The obligations placed on auditors is massive and in my view entirely mis-understood. Auditors play an important role in the SMSF arena but there are some cowboys out there offering to sign audit reports withouth really living up to their responsibilities. Depending of course on the mix of investments, it is simply not possible to prepare the accounting tax & audit for under $2K (unless the only investment is a few term deposits). Fees are transactional based so the more transactions (volume of, not value of) the more time and effort required to undertake the audit. I would say to anyone that if they want the freedom & flexibility to manage their own superannuation they could expect to pay anywhere between $2K to $5K to cover the compliance side of things. If people are looking to save money they should be looking at financial planners who are receiving asset based fees/commissions. You might find you are paying them more than you are paying your accountant/auditor.
I’m a financial planner from overseas, and the widespread epidemic of fraud in SMSF fees and audits is appalling. It is appalling and rediculous beyond imagine how companies are even beginning to try and claim you should have $200,000+ in an SMSF or its not worthwhile. The only reason for this is FRAUD by the advisors. There is no ethical grounds upon which you can charge someone a fee for an SMSF. If your an advisor you make commission on your trades. If not, a $200 fee will suffice, as the incredibly simple SMSF paperwork should easily be completed within an hour. $200 an hour is enough for any advisor to tell you to “here fill out this form”, if not, get a new advisor. Anything more than this is GOUGING, plain and simple. The fact that the government will not allow mortgage commissions above .7% here on a $200,000 mortgage paying $1400 to the aggregator (brokers Head office) but they will allow “advisors” to rip someone off more than this on their retirement fund, is morally questionable, at best. many claims of $4,000 or $6,000 or $8,000? Lawsuit anyone? Oh..my…God…maybe criminal investigations are needed.
And then the so called “audits” if you have an investment fund, what is to audit?? Its already on the paperwork, all detailed. If you have 4 super fund companies and a brokerage account, all the accounting has been done. Tally up the 5 and enter, print. $400 a year for this when a personal tax return which requires less work is $95 at the shops?? What a SCAM. And the lies of how “complicated it is” to take someone else’s form and carry over the numbers into the computer. this makes me want to vomit. Where is the integrity in this country? There is no excuse for one of these Audits to be beyond $200 unless a massive papertrail needs to be established on unaccounted collectibles or something. Fraud city!
Shop around folks, and report anyone to the ATO and your MP who is charging more than $200 setup and $200 a year audit. What a joke!
P.S. In Canada and the USA, we all do this service FOR FREE. No one charges for it. No one. Advisors get commissions and trailer commissions, management commissions on trades and investments, or charge annual management fees. THAT should easily cover any time they spend doing the paperwork, and the few dollars an hour they pay the in house paperwork team to do audits. If not, take your business down the road to the next advisor who wants those commissions and management fees. This industry in Australia is as unscrupulous as the “average priced” pompous $500 an hour lawyers here. in the USA there is freedom to charge anything you want, but no one would charge this, they would be looking over their shoulders so much they couldn’t stand it. Likely they would have to become best friends with their Kevlar even. WOW. Where is the government on this one? They take away load commissions on investments so the 90% of Australians who don’t have heaps of spare cash cant afford advice, then on SMSF’s they allow advisors to rip you off blind. What idiots! All this from the Frauds who lie they saved AU from the GFC with a stimulus not even 1/10th the amount the USA put up. Not surprising.
BT – It is obvious you don’t know what you are talking about. Have you seen the requirements the Australian Taxation Office have on SMSF audits – both of the financial asset and prudential standards of the fund. Have you read an audit report and all the sections that the auditor MUST sign off as having tested / considered of the Superannuation Industry Supervision Act? These are Federal government requirements – they have to be done by an appropriately qualified professional – not just any life insurance salesman masquerading as a financial planner.
And haven’t you noticed that Australia has moved away more and more from the corrupt practice you espouse of commission and trail – which encourages planners to write investments in what pays THEM the most, not the best product. And also encourages Churn.
BT,
I think you have a major misunderstanding – given that you even claim to be from overseas that’s understandable. You have no understanding of what is going on in Australia and I for one wouldn’t be commenting on situations outside of my own Country as we all know rules and laws differ.
The issue is that the auditor must be INDEPENDENT. That’s the point. So a financial planner or accountant that does all the work hands off the audit to an independent auditor. Is this independent auditor going charge nothing for his time? If you want an idea of what auditors must do – have a look at the ATO website http://www.ato.gov.au and look under Super Funds for Auditors.
I was an auditor or 15 years before I retired, not in accountancy but in systems management. Auditing is simply a task of risk and function evaluation. The problem with auditing of SMSF is that the ATO has not provided a prescriptive level of required evaluation.
This gives auditors carte blanche as to how much investigation they will do to satisfy themselves as to the reliability of the overall data set. For the less scrupulous this is simply the goose that lays the golden eggs for there is no legitimate challenge as to the level of effort delivered or undelivered for whihc you billed.
I would bet my whole retirement pension fund that there would not be one major corporation in Australia that would receive the same level of evaluation as a applied to SMSF’s. Not I would hasten to add on the basis that SMSF’s are more risky but on the basis that they are a soft target
In actual fact if there’s one thing that the global financial crisis revealed it is that auditors to large corporations were not only in some instances negligent but complicit in aiding and abetting, high-level risk and dysfunctional operation
Not that I can be absolutely certain but from my general enquiries it appears to me that no other entity is required to have mandatory audits at the same level of accountability as SMSF’s.
Perhaps this is the strategy of government to deter the widespread choice of SMSF’s.
In any event by my calculations if my fund was to receive the same level of evaluation risk and function as delivered to major corporations it would require interrogation of not one single transaction of my fund but 1000th of one transaction .
The audit charges are rundown by big audit firms because they charge tax and accouting fees hig and use some local auditor or other brach office to use thieir name. I have seen accounts audited previously with lot of errors .The quality of audit will go down when the fees go down.
At least we need four hours to review the accounts and other compliance issue to finalise any audit. How do people expect to finish audit within $500.00. ASIC should impose similar laws like company audits with regard to change ausitors and licencing auditors
To further demonstrate the point I made above, I obtained a quote from a company to manage my super fund. Depending on whether the fund was in the accumulation phase or the pension phase the quote ranged from $7.60 to $9.90 per transaction (yes per transaction) with a minimum transactions charge out price of 150. When transactions exceeded 150 the price for additional transactions was $3 dollars.
To break this down further it ranges from
• $3.30 per transaction for auditing fees and $4.30 per transaction for accounting fees if your fund is in the ACCUMULATION stage to
• $3.50 per transaction for auditing fees and $6.40 per transaction for accounting fees if your fund is in the PENSION phase.
Now I don’t know what accounting software this accounting firm uses but I can process somewhere in the vicinity of 100 transactions in 1 hour with my software and this can be done by someone that costs me $32.75 per hour to maintain.
Further given that some of my transactions involve a credit of a few cents of interest on low interest-bearing accounts in some instances the cost of auditing and accounting that transactions far exceeds any return.
Woolworth I estimate, would make somewhere in the vicinity of 5 million transactions a year. To apply this level of rigor and scrutiny to Woolworth would cost the company $14.9 million a year in just accounting and auditing costs. I wonder how much Woolworth actually pays for this aspect of their company governance.
And while we are on fees, when I first started my fund I paid the taxation office $45 a year to cover their costs in administering SMSF. This year it is $180. That is a 300% increase since 2004 while inflation has gone up by 25.6%. Auditors and accountants aren’t the only organisations that see SMSF as big fat juicy milking cows.
Warren
You haven’t been around long enough then. The fee used to be $200 when SMSF were regulated by APRA, the fee was slashed when it moved to the ATO.
Secondly – you are approaching the accounting and audit work in the wrong way if you are getting per transaction pricing rather than an annual agreed fee. But there are those in the market that get scared by an accounting number – Say $800, and an audit number – say $600 and want the smaller numbers.
And I know you can get a smaller fund done as a quality job for that sort of price (but it won’t be a large CBD Big 4 or Second Tier – you would need to look further afield).
I personally don’t have a SMSF yet, but assist my in-laws with their $800K fund including recommending who they engage as auditors.
I have a SMSF worth about S700 000. It owns one property, shares in ten companies, some gold and some cash. I am not yet in the pension phase. This year my accounting and auditing fees almost doubled. The charge was $678.37 for the auditor plus $3575 for the accountant. I keep my accounts on MYOB and have a book keeper to review my figures before submission. Needless to say my accountant is justifying these figures, but I feel ripped off. I know every super fund is different, but I think, as a body, we could devise some system of review whereby members could check costs for different levels or components of investment against some average bench marks. I confess to being naive in matters numerate, but it seems to me that people can work hard for their money, and end up paying a large proportion for mandatory insurance and accounting.
Goldilocks
If you are lucky your fund has receipts of about $42,000 and certainly negative capital growth. $4,000 a year or 10% of gross receipts on administration is not only a rip-off but poor business management. I like your idea- let organize a system that delivers value for money – if we have enough other SMSF managers that will put their hand up to come on this journey with us!