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Are SMSF audits too expensive?

Note: Every year, the ATO publishes the average audit fees incurred by SMSFs. This article contains data for financial year ending 30 June 2014 (latest available as at January 2016). We have retained all comments from earlier versions of article. The next update, for compliance data up to 30 June 2015, will be available in late 2016.

Q: SMSF auditors and administrators are charging rather high audit fees, perhaps because of the mandatory nature of these audits. 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: 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 pension phase
  • 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 Australian Securities and Investments Commission (ASIC), which now regulates and registers approved SMSF auditors. I am also interested in hearing from other readers about the costs of running a SMSF – feel free to share your experiences in the comments section at the end of article (we do not publish the names of service providers or products in the comments section).

How much do SMSF audits cost, on average?

I can offer you two reference points for you to compare your SMSF audit costs with those costs incurred by other SMSFs:

  • Analysis based on 32 SMSF service providers
  • Statistics released by the ATO on SMSF audit costs

Based on the research of 32 SMSF service providers that I reviewed when writing DIY Super For Dummies, 3rd edition (Wiley), the fees charged for completing a super fund’s annual return and audit, range typically start from $600 and can cost up to $1,000, although competition among specialist SMSF auditors has lowered audit fees for simple SMSFs, to below $500. If a super fund has a lot of investment transactions, or complicated investments, some SMSF service providers charge up to $3,000 and perhaps more.

A fee of $2,000 for the audit and income tax return of a $200,000 SMSF may seem high, but it is difficult to comment without knowing what additional work (if any) the SMSF provider has done on the fund’s behalf. For example, costs may have been higher if the reports prepared by the SMSF trustees were not compatible with the accounting and reporting systems of the SMSF provider, requiring rekeying of data. The fee may also include the annual ATO supervisory levy of $259 payable by an SMSF.

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 2014 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 2014 SMSF annual return.

The total average audit fee is $714 for the 2014 year, while the median audit fee was $550.

Warning: 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.

Table 1: SMSF audit fees (for year ended 30 June 2014, and earlier years)
SMSF auditor feesAverage audit feeMedian audit fee
2014$714$550
2013$736$550
2012$571$462
2011$595$481
2010$623$495
2009$659$495

Source: ato.gov.au, ‘Self-managed superannuation funds: A statistical overview 2012-2013’, and ‘Self-managed superannuation funds: A statistical overview 2013-2014’

Have SMSF audit costs increased over time?

The ATO also provides data on the percentage of SMSFs that pay different levels of audit fees. Table 2 below lists audit fee ranges, and the percentage of SMSFs that pay those levels of fees.

Note: According to the ATO, over the 5 years to the end of the 2014 financial year, SMSFs reported they were paying more for audit fees. For the 2014 year, 37% of SMSFs paid less than $500 in approved auditor fees, compared with 52% of SMSFs in 2010 and 50% in 2009. Although audit costs at the upper end seem to be trending downwards: For the 2014 SMSF return, 2.8% paid $2,000 or more for audit fees, compared with 3.4% paying $2,000 or more for 2013 year, and compared with 3.4% in 2009.

Warning: In Table 2 below, it is true, over time, that the percentage of SMSFs paying $1,000 or more in audit fees has stagnated over the 5-year period from 2009 (11.3%) to 2014 (10.9%), although the percentage of SMSFs paying less than $500 has fallen from 50.1% (2009) to 36.8% in 2014. Further, the average auditor fee for 2014 was $714, compared with $659 for the 2009 year, and $623 for 2010 year.

Although not explored by the ATO, since SMSF auditors must now be registered by ASIC to operate as an approved SMSF auditor, this extra requirement may explain the higher cost of SMSF audits for the 2014 year (see Table 1 earlier). Audit costs charged to SMSFs in the future may increase due to the greater compliance costs associated with operating as an ASIC-registered approved auditor, although these extra compliance costs may be offset by specialist auditors streamlining the audit process.

Table 2: SMSF audit fees: How much do SMSFs pay?
Audit fee range20082009201120132014
$1-$49951.1%50.1%53.8%36.8%36.8%
$500-$99933.5%34.6%33.8%47.9%49.4%
$1000-$1,99910.9%11.3%9.3%11.9%10.9%
$2,000 and above4.4%4.0%2.6%3.4%2.8%
Total100%100%100%100%100%

Source: www.ato.gov.au, Self-managed superannuation funds: A statistical overview 2013-14, Self-managed superannuation funds: A statistical overview 2012-2013 and Self-managed superannuation funds: A statistical overview 2011-2012.

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Comments

  1. wolf_lord2002 says:

    A very nice article! I have actually had a couple of calls querying audit fees, as our website states one amount, and they were charged a lot more. We explained to them that the accountant adds other fees on top such as the preparation and sending documents to us.
    At the end of the day it is up to the Trustees to choose who audits the fund, if you find fees are too high then shop around. Just remember cheaper isn’t always better, I recommend calling or emailing the firm and talking to them.

  2. Hi Trish,

    Where you say that the audit price depends on whether the fund is in the Pension Phase, are you saying Pension Phase should cost less or more? (Both members of our SMSF are in Pension Phase)

    Thanks,
    Dave

    • Hi Dave
      Thanks for your email.
      Some auditors do charge a higher fee for super funds in pension phase.
      For example, because a pension account needs to withdraw a minimum amount each year, there may be some extra checking, but on the other hand, if a fund is purely in pension phase, the auditor is not dealing with assessable income or super contributions.
      Higher audit fees normally relate to super funds that are in both accumulation and pension phase.
      The audit cost may also depend on the complexity of investments while in pension phase.
      I suggest you confirm audit fees with your accountant and auditor.
      Regards
      Trish

  3. What is a rough estimate for cost of audit and accountancy fees. My husband and I have a SMSF in pension mode and are charged over $4000 for audit and accountantcy fees, dont do any trading as such. Have shares, funds and cash.

  4. I assume these numbers are reflecting members as trustees. What about funds that have a corporate trustee, where the accounts and audit of the company have to be included?

  5. Is there any exemption from having to have a SMSF audit? My auditor, so called, is the other partner in the accounting firm that does the SMSF tax accounts, so actually doing anything is a myth, but charges $781 for the privilege. This is a self managed fund for myself only as the single member, in pension mode, Apart from fixed deposits, there is one investment in a major hedge fund, and no other transactions apart from one or maybe two annual withdrawals. There is near zero work involved, except billing me and banking the money.

    If I was to withdraw all the money, there would be no tax effect, so fraud by me of my super is not a problem. The only remaining reason to be audited is to provide comfort to the Australian Taxation Office, and it is a lot to pay for that privilege. I feel that there should be audit exemptions for simple funds that are running in pension mode only.

    I am now considering whether I should opt out and dissolve the fund to escape the work, the audit accounting and ATO fees, and the responsibility of a SMSF. The last round of fines and penalties make it really unattractive as well.

    • No, there are no exceptions. Even with a very simple fund there is work that is mandated, but $781 seems high. However withdrawing all the money means you’ll pay tax on whatever it earns in future.

      It depends on how much you have and you’re earning. If you have $500,000 in your SMSF and it’s making 7% then if you took it out you’d be taxed on $35,000 pa which would be about $3,000 (very roughly). plus you’d still have to put in a tax return.

      If you have a lot less the numbers differ of course.

      But the easiest thing is to talk to your accountant and tell them you feel you’re paying too much.

  6. Robert Lopez says:

    A high quality SMSF Audit can be done for a competitive price – the main issues is how good the SMSF records and accounts are.

  7. Jim steggs says:

    HI
    can anyone help me out? im am wondering if there is anyway i can get a list of all SMSF auditors. i have tried calling ASIC and the ATO and they wont release any information to me. Is ther any other way i can find this information??

  8. Good grief – are the attributes of accounting skills and the ability to write proper English mutually exclusive? I came to this thread hoping to gain some insight into audit fees for SMSFs, but I can’t get past the horrifying spelling from many contributers, some of whom claim to run auditing businesses.

  9. sorry to be late to the discussion …

    I would prefer to abolish the annual audit for smsf if the trustees are under 50 – and replace it with an audit every 3 years.

    My smsf is largely an inert mass – 50% in cash, 50% in blue-chip shares (with stuff-all trading going on). I add my salary contributions each fortnight and the whole smsf system chugs along nicely and that’s the way I like it.

    For people like me (<50 yo) with a smsf that doesn't increase more than 20% a year (even after fortnightly contributions) then I think an audit every 3 years would be better. The exception to this would be if there was a big monetary change to a smsf account during a year.

    • Hi Stuart

      We are in the same boat and totally agree with your proposal. Can you suggest somw ways to minimise the audit fees. Thanks

  10. Hi Stephen
    Re $250 – they’re either not doing a proper job or they are complementing their fees some other way. – You missed another possible reason –

    The fund has so few transactions and thay are so well documented and evidenced that you can audit ALL the transaction while the kettle boils.

    • Warren,

      Thanks. I didn’t forget it, just chose not to include it because the implication was that auditors can do audits on complex SMSF’s for $250.

      But yes, you’re right, extremely basic SMSF’s with next to no transactions can be included.

    • I think you guys need to get out of the big firms and into the real world

      Our business is sound and growing , the majority of our funds have between $ 500 000 and 10 000 000 in assets.

      you guys can continue to have a crack at us , but we will continue to grow and prosper

  11. There is no way an audit fee should exceed $ 550 . There are a lot of very compentent auditors charging between $ 250 and $ 550 for an audit. In respect to the annual admintration and accoint fees , ther fee will depend on the nature of the transactions and assets and advice required .

    I woudl stay clear of the large accountanting firms and look for the small firms in the surbans , the fee shoudl be between $ 1000 and $ 3000 per annum

    • Craig,

      In my opinion an audit fee for an SMSF should not cost anything LESS then $550.00. The requirements placed on the auditors of SMSF’s is huge. What they are actually required to do and check is a long list, even for a basic SMSF.

      Fees are also going to go one way – up. With ASIC now becoming the regulator for Auditors of SMSF’s, and fees being charged to auditors to become registered, and requirements becoming even more heavy handed, audit fees are on a one way trip.

      Have a look at the ATO website and look under the Super Fund section for auditors, then read through some of the ATO documents about what is required of an SMSF auditor and then tell me that $550 is too much. $250 – they’re either not doing a proper job or they are complementing their fees some other way.

    • Thanks for your comments Stephen

      my team complets around 4500 smsf audits per year for between $ 275 to $ 440 for around 200 accountants and accounting firms . All audits are completed within 7 working days

      we have been reviewed by the ATO and The ICAA and they have no problems with quaility or processes. No issues were raised by them in their reviews

      It all comes down to overheads, processes and knowledge. A hands on operater with good systems can complete most audits effcetively , timely and effiectely

      • Craig,

        Going back to what I said before “$250 – they’re either not doing a proper job or they are complementing their fees some other way”

        My comment about complementing their fees some other way is meant to take into account bulk work. Naturally if a firm is doing so many then the quantity of work allows them to charge a lower fee compared to a competitor.

        I still maintain that a fee of $550 is a base minimum and that trustees should get used to the idea. I’m not saying that it’s perfect, god knows the super industry needs some legislative changes.

        You should put your fees up.

      • “my team complets” & “effcetively , timely and effiectely”
        No further comment.

    • HI Craig,

      I am looking for someone to audit my SMSF as my current auditor is creepingup his fee. Can you please provide your firm details so I contact you for a quote?

  12. I checked with my friend just out of curiosity as to how his self managed fund went last year. From his shares component (3 banks +Telstra) he averaged 7.5% (fully franked at 30%) return on capital invested and averaged capital growth of 11.3% and from his cash component average 5.86% return on capital invested all less zero management and account keeping fees . How does that compare with the professionally managed funds ?

  13. Hi Kam
    I would say that sounds cost effective, considering the alternative is 1%. Yes, good thing your son is sceptical for you. Some (“normal”) super funds I have seen closer the 0.60% expense ratio’s but depends on the investment allocation etc. They are normally less if it is in conservative or cash.

    There are plenty of resources on this Super Guide.

    You may also wish to have a read of the Australian Taxation Office’s guide to SMSFs
    http://www.ato.gov.au/superfunds/content.aspx?menuid=0&doc=/content/00251857.htm&page=1&H1

    Regards

    Mark

    • Hi Mark,
      Thank you again!
      I suppose there is no need to shop for another fund; with no experience it is not possible to choose the correct one for my situation. Other funds would usually shoot my current fund down. They would say theirs can perform better. However to change to another fund they will normally charge set up fee, correct? And it is hard to tell if they will perform better than my current fund. For the last 6 months my current fund’s total investment earning was 3.9%. Is that satisfactory?
      Regards,
      Kam

  14. Thank you Warren and Mark.
    Luckily my son, who is very much on the ball, question the cost of the fees charged by the accountant (who has a separate company but acts as team with the financial adviser to provide “service” to people who want to set up SMSF).
    BTW I just got a 6 monthly report from my normal “super fund” that states the fees for the last 6 months was $810 that roughly equates to 0.2%. Is this common?
    The Australian shares 6 month return = 3.1%; International shares (hedged) = 7.9% (6% unhedged)
    For 12 months return, Australian shares = -7%; International shares = 0.4% (hedged), (-0.5% unhedged)
    Regards.
    Kam

  15. Hi Kam,

    Moreover what Warren was saying, it shouldn’t cost that much to operate an SMSF.
    The question I put to you is how is he able to quote a price of the accounting fee?
    SMSF that invest in Term Deposits and portfolio of shares generally take less 8 hours to complete.
    And if you have ever completed your own tax return – its probably just as easy IMO.
    Perhaps you should look at some of the offerings from the site-sponsor / advertiser to get an idea of the true cost. I personally have not seen a $10K charge on an SMSF (accounting + investment + audit) in about 3-4years, the costs have come down significantly since the GFC has struck.
    Most clients would use an investment adviser – adhoc, like share broker – to set up the initial portfolio, rather than have them eat away at your super on an ongoing basis….. you’d be lucky to get a call from them IMO.

    Just some thoughts.
    Mark

  16. The amount someone spends on administration of a self managed super fund is inversely proportional to the skills they possess and their expectations.

    The first thing that any honest, fund manager or financial adviser will tell you is ‘there are no crystal ball’. The future is new territory, the likes of which the human race has never experienced in the last 300,000 years. Global warming, global pollution, and resource depletion, will all affect the world that we operate in, even for most of the baby boomers, before they die.

    I have friends who are over 65 years of age I am sure they won’t mind me sharing their details with you.

    They have their own SMSF with just over $1M In assets. They have no aspirations of leaving much of their super fund to their children. They are happy to live on a modest income, by there standards. They don’t use the services of a financial adviser/planner they simply invested half their assets in a dividend returning share like the Australian banks and Telstra and the other half in term deposits and on call high interest accounts.

    Because of this they have simple account so do their own book work and spend $380 a years on audit, submit their own tax return, pay no tax only the ATO SMSF levy.

    They had annual inflation adjusted income of $74,000 last year this comprised $15,000 franked dividends and $25,000 in interest with a capital draw down of $34,000 from both the cash and share accounts resulting in inflation adjusted residual Fund assets of 98.6%.

    And didn’t need to pay $10,000 to achieve this outcome.

    Not that we live in a world without change but based on current situations, without change, in 2047 at age 100 they will have an annual inflation adjusted income of $208,000 this will comprised $26,000 franked dividends and $41,000 in interest and a capital draw down of $141,000 resulting in inflation adjusted residual Fund assets of 61%.

    That all will I can say on this issue.

  17. I hope someone out there can help me. I am over 65 years old and I have my super with I*** for more than 10 years. A friend introduced me to a financial adviser/planner who said he could set up a SMSF for me and my my wife for total value of over $1m. He told us he can save us $10K in fees each year compared with I*** and better return. But he will charge $5K for investment management and $5K for the accountant plus $800 auditing fee each year. If I like can provide as much or as less input into the investment strategy, it’s up to us. What do you guys think about the charges?

    Thank you in advance,
    Kam

  18. Goldilocks says:

    Thanks all for your replies. Yes I agree that i should not skimp on auditing. I did not have an argument with the $670 spent on the auditor. it was the rest that seemed steep. I do keep my books in meticulous order, and everything is reconciled and reported on. However I do use MYOB – thought that was the thing to do – What is BGL? Am getting quotes – will ask. – Ross thanks for that advice.

    I will not go on a pension yet, but understand that attracts more fees (yes i know there are tax benefits) and now I understand the government is about to impose another condition where property have to valued by a licensed valuer – another fee…. Grrrrr

  19. There is no way a professional can prepare a set of SMSF financial statements and arrange for an independant auditor for $600 to $1,000.

    Most accountants and all auditors are independant and are only paid by the fund. So to expect that at an average firm rate of $200 per hour that the whole matter can be completed in 3 to 5 hours is naive.

    A fund with a $200k balance should not be self managed unless the individual has access to investments that are not open to the general market. If you want to reduce the costs of your fund you should talk to your accountant and ask them what system they use and apply that system to reduce double entry.

    Most accountants use BGL so you should use BGL Simple Fund to assist in reducing processing costs. If you prepare everything in excel or MYOB you are not assisting the process.

    If you engage a financial planner you will find that the management fees, advice fees, administration fees, success fees, outperformance fees, retainer fees, WRAP and platform fees will be inflated to mask an artificially lower accounting fee.

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