In this guide
It could be argued that many self-managed super fund (SMSF) trustees have little involvement in selecting their fund’s auditor. Either the SMSF administration provider or the fund’s accountant puts forward their preferred audit firm, and the audit just seems to happen.
But how do you know that this is the best or most appropriate option for you?
Should this decision be based solely on cost, where the cheapest option is selected? Or turnaround time, so that the auditor who can carry out the audit in the shortest time frame gets the job?
In my opinion, neither of these should be the deciding factor or dictate who you should engage. Instead, the decision should come down to these few simple factors:
1. A professional approach
Your SMSF auditor needs to take a professional approach to any work being carried out.
An auditor who simply signs off on your annual audit without actually going through the required audit and review processes can actually add risk to you and your SMSF.
There are a number of ‘professional standards’ that apply to those working in the audit space, and it is of absolute importance that all of these standards are addressed.
If your SMSF auditor fails to follow these professional standards, then they can become a target for the Australian Taxation Office (ATO) and suddenly, your fund is in the spotlight.
2. Clear communication
Your fund auditor should be able to communicate clearly with you during the audit process.
If documents or other audit evidence are missing or something has not been provided when it should have been, they should ask you for what they need and not assume it doesn’t exist.
A good working relationship between trustees and the auditor is important.
3. Clear understanding
Your SMSF auditor should not only have an in-depth understanding of the superannuation and tax rules, but also have a good understanding of your SMSF or at least be prepared to ask you questions about your SMSF and the transactions that have taken place.
Before we dive deeper into the qualities of a good SMSF auditor, it is important to understand who, in fact, can do this work for you.
Who can carry out your SMSF audit?
Your annual audit must be conducted by an approved SMSF auditor who is registered with the Australian Securities and Investments Commission (ASIC).
The auditor must also be independent, meaning they cannot be a trustee, member or related party of the fund, nor have any financial interest in the SMSF. This ensures the audit process remains unbiased and complies with the necessary professional standards.
It is also important to note that an SMSF auditor cannot carry out an audit on a fund where they, or someone from their firm, have been involved in other aspects of the fund, such as preparing the fund’s financial statements or where specific fund advice has been provided.
You can search for SMSF auditors using the ASIC Register online, which lists all approved auditors. It’s also a good idea to ask your accountant or financial adviser for recommendations, as they often work closely with trusted auditors. But remember, these should be recommendations only – you are ultimately responsible for your choice of auditor.
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What makes a good SMSF auditor
A good SMSF auditor possesses a strong understanding of superannuation laws and regulations, ensuring compliance with the latest Australian standards.
Therefore, ongoing professional development is important because it helps auditors stay up to date with ongoing legislative changes and best practices.
Paying close attention to detail is essential, since auditors need to carefully examine financial statements and fund activities to identify possible inconsistencies or violations.
And finally, effective communication skills help auditors to clearly explain their findings and recommendations to trustees, making the audit process transparent and constructive.
Other issues to consider
Low-cost auditors
Engaging low-cost SMSF auditors can present several risks and challenges for SMSF trustees, the most significant being whether the audit is both thorough and compliant.
The potential for issues, errors or breaches to be overlooked can often be higher where there is less time spent on the process. This can, of course, place trustees at risk of penalties from the ATO and jeopardise the fund’s ongoing compliance status.
Low-cost audits may not necessarily always result in a low-quality product, but the ATO says it’s certainly a factor or indication of risk that they look out for!
This risk is compounded where a low-cost auditor is also a high-volume audit provider. These low-cost, high-volume firms may not have the necessary resources to carry out all the requirements imposed by the professional standards.
Ultimately, trustees should carefully weigh the potential cost savings against the perceived risks.
Where is the work carried out?
Outsourcing has become quite common for accounting and auditing professionals, with a number of firms now using overseas businesses or resources to help with or carry out the SMSF audit.
This can lead to increased attention from the ATO, as they may want to know:
- Whether the relevant privacy laws have been followed where client information and data have been sent out
- What training and ongoing professional development the overseas staff or service providers have been given
- What levels of internal quality control are used to ensure a professional process is followed.
If your SMSF auditor does outsource, then getting a clear understanding of and answers to the above issues would certainly be important
Questions to ask before you engage
There are a number of questions you can ask before deciding on an auditor, to determine if they are appropriate for your SMSF, including:
- What is your experience with funds that are similar to ours or have similar assets or investments?
- Will you communicate directly with us, or do you only engage with the fund’s accountant or administrator? Remember that it is the SMSF trustees who are formally engaging with the funds auditor – NOT the fund’s accountant or administrator!
- What documentation will you need from us and how should it be provided?
- How long does it typically take for you to carry out an audit? Keep in mind that a quick turnaround is not an indication of quality.
- How do you charge for your services? Again, keep in mind that low cost should not be the only relevant factor for SMSF trustees to consider.
- Do you keep us informed of the issues you find before a final decision or report is signed off?
- Do you provide a ‘pre-audit’ opinion on issues that we may have?
- Do you stay up to date with SMSF regulations and compliance requirements through ongoing professional development?
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