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For self-managed super fund (SMSF) trustees, an annual audit is not only mandatory but must be conducted by an auditor who is registered with the Australian Securities and Investments Commission (ASIC).
This auditor must be independent, that is, not have any financial interest in the SMSF, nor have any personal or business relationships with fund members or trustees. An SMSF auditor is responsible for analysing a fund’s financial statements and assessing its compliance with superannuation law. They must report any non-compliance issues to all fund trustees and the ATO.
How often does your SMSF need to be audited?
Currently, an SMSF must be audited annually, and the trustees of an SMSF must appoint an approved auditor at least 45 days before their fund’s annual return to the Australian Taxation Office (ATO) is due. It’s important to understand that an audit is required even if no contributions have been made to the fund and no benefits have been paid in a financial year.
Proposed three-year audit cycle
In the 2018–19 Federal Budget the government proposed that from 1 July 2019, the annual SMSF auditing requirement be changed to once every three years for SMSFs with a history of good record-keeping and compliance. This proposed change has been widely criticised across the SMSF industry (not just by SMSF auditors), and by SMSF trustees. See the following SuperGuide articles for further information:
- SMSFs: 3-year audits policy will add complexity and not benefit trustees
- SMSFs: 3-year audits policy undermines integrity of the system
- SMSFs: What are the consequences of the 3-yearly audits policy?
Under the proposal, SMSFs that are approved for three-yearly audits would have all of their fund’s transactions for the previous three years audited, rather than just the previous year as happens with the annual auditing process.
To be eligible for a three-yearly audit cycle rather than an annual audit, SMSFs would need to have submitted their annual returns on time to the ATO for the previous three years and been assessed by their auditor as having been fully compliant with all super legislation during that time.
However, if an SMSF moves to a three-year audit cycle under the new legislation, they will still be required to have an audit in the year in which any ‘key event’ occurs. Common examples of such key events would be:
- A member of the fund commencing a super pension income stream for the first time
- A member of the fund dying
- The addition of a new fund member
- The removal of a fund member
- The commencement of a limited recourse borrowing arrangement by the fund
- Any in-specie asset transfers made to fund members
What are the average costs for an SMSF audit?
The table below shows the average and median costs of an SMSF audit in 2016–17 (the most recent figures available). These figures have been calculated by the ATO based on audit fees and expenses reported on SMSF annual returns. Remarkably, the median audit fee has remained at $550 for the last five financial years.
| SMSF auditor fees | 2014–15 | 2015–16 | 2016–17 | 2017–18 | 2018–19 |
|---|---|---|---|---|---|
| Average auditor fees | $760 | $704 | $695 | $690 | $686 |
| Median auditor fee | $550 | $550 | $550 | $550 | $550 |
Source: Australian Taxation Office
The following table shows the proportion of SMSFs that fall within a variety of auditing fee ranges. As you can see, the vast majority of funds have annual audit fees of less than $1,000.
| Audit fee range | 2014–15 | 2015–16 | 2016–17 | 2017–18 | 2018–19 | |||
|---|---|---|---|---|---|---|---|---|
| $0 to $499 | 36.5% | 36.9% | 37.6% | 38.4% | 37.9% | |||
| $500 to $999 | 47.8% | 48.9% | 49.7% | 50.2% | 50.4% | 49.7% | 50.2% | |
| $1,000 to $1,999 | 12.0% | 11.5% | 11.0% | 10.5% | 9.8% | 9.8% | 9.9% | |
| $2,000 and above | 3.4% | 3.1% | 2.8% | 2.4% | 2.1% | 2.1% | 1.9% |
Source: Australian Taxation Office
What factors affect the cost of an SMSF audit?
There are many factors than can affect the cost of an SMSF audit, including:
- The complexity of the fund’s operations. For example, whether ‘key events’ (see above) have occurred during an audit year.
- The number of members of the fund. As of 1 July 2021, SMSFs can have a maximum of six members, up from four previously.
- The number and frequency of the fund’s investment transactions.
- Whether any fund members are in the retirement phase.
- The effectiveness of fund trustee record-keeping systems and processes.
- How long the fund has been operating. For example, there may be more auditing work in the fund’s first year of operation to ensure that it has been set up correctly.
How to find an SMSF auditor
You can search for an SMSF auditor online via ASIC’s register. These auditors have a valid SMSF auditor number (SAN) that they are required to supply on any SMSF returns that they submit to the ATO.
According to the ATO, the number of SMSF auditors has decreased from 6,285 in 2015 to 4,969 in 2019. This is despite the number of SMSFs increasing during that period and reflects the fact that the SMSF audit industry is consolidating.
What happens in an SMSF audit?
SMSF auditors conduct both a financial and compliance audit of an SMSF’s operations as part of their auditing process. The financial audit analyses all of the fund’s financial statements (balance sheet, income statement and member statement) based on Australian Auditing Standards. The compliance audit analyses the fund’s compliance with all super legislation.
When these financial and compliance audits are finalised, an SMSF auditor must complete an independent auditor’s report document supplied by the ATO. This report must be provided to the trustees of the SMSF within 28 days of the auditor receiving all relevant documentation. SMSF trustees should work with their auditor to rectify any breaches as soon as possible. It is one of the legal responsibilities of fund trustees to then submit their fund’s audited annual return to the ATO and to ensure any associated tax obligations are paid in full.
If there have been any breaches (contraventions) of super legislation revealed in the compliance audit, auditors must report them to the ATO within 28 days using an ATO-provided contravention report document. If any breaches remain unresolved, trustees should take advantage of the ATO’s early engagement and voluntary disclosure service for SMSFs.
SMSF trustees who voluntarily disclose any breaches before the ATO commences their own investigation will have this disclosure taken into consideration when the ATO subsequently considers the potential range of penalties it may impose.
What documents will I need to provide for an SMSF audit?
SMSF trustees (or any professional advisers that they may have hired such as an accountant) must provide their auditor with all relevant documentation for their fund’s accounts and financial transactions for the financial year being audited. For example, all financial and bank statements for that period.
If the SMSF auditor requests any further information or documentation, trustees must provide this material within 14 days.
The bottom line
SMSF trustees are legally obliged to have their fund audited by an independent SMSF auditor to ensure their ongoing compliance with Australian super legislation. The ATO can impose a range of penalties for non-compliance, depending on the seriousness of the breach.
The information contained in this article is general in nature.
