SMSF Blog

SMSF Audit questions call toll free 1300 733 159

SMSF Audit fees – are they reasonable?

SMSF Audit Fees

There is a lengthy debate running on SuperGuide http://www.superguide.com.au/diy-superannuation/smsf-audit-fees as to the reasonableness of SMSF Audit fees (in many searches this is appearing as the first ranked item). After reading the contributions, particularly those who suggested SMSF audits should be free, I thought it worthwhile reviewing the facts and clarifying what an SMSF auditor is required to do.

SMSF Audit v Bundled SMSF Service?

Many of the comments on SuperGuide regarding SMSF audits are in fact referring to a bundle of services including preparation of accounts, conduct of SMSF audit and submission of SMSF annual return.  These services are frequently bundled into one fee by the services provider (regardless of whether they are an accounting firm or an SMSF Administration service). This potentially makes life easier for Trustees – only one organisation to deal with, one invoice, one bum to kick if anything goes wrong.

Who can audit an SMSF?

The SMSF Audit must be undertaken by someone who satisfies the SIS definition of an ‘approved auditor’ and who is a member of one of the following professional bodies:

  • a member of CPA Australia Ltd
  • a member of the Institute of Chartered Accountants in Australia
  • a member of the National Institute of Accountants
  • a member or fellow of the Association of Taxation and Management Accountants
  • a fellow of the National Tax and Accountants Association Ltd
  • an SMSF specialist auditor of the SMSF Professionals’ Association of Australia Ltd
  • a registered company auditor
  • an auditor-general of the Commonwealth, a state or a territory.

(Penalties of up to $5500 apply for anyone representing themselves as an approved auditor when they are not eligible).

Should your accountant audit your SMSF?

The accountant who prepared your SMSF accounts and tax return is almost certainly a member of one the bodies on the abovementioned list. This does not mean they should also audit your self managed super fund. The purpose of an audit is to independently review not only the financials of your fund (the traditional financial audit role), but also, to review your funds compliance with SIS rules – this includes ensuring the Trust deed is compliant just for starters (the ATO audit requirement). Accordingly, the professional bodies in the above list specify that a member who has prepared the accounts of an SMSF cannot be involved in the audit of the fund (ie the SMSF auditor must be independent). Many firms satisfy this requirement by having one partner prepare the SMSF accounts and another partner audit the SMSF. Whilst this may technically satisfy the independence requirement, it is not, in my opinion best practice. More importantly for Trustees, the ATO has indicated it will be data matching the addresses of tax agents submitting SMSF Annual Returns with the address of the SMSF auditors signing the Audit report. In cases were the funds auditor and tax agent are located at the same address, a higher risk will be attributed to the fund, potentially increasing the risk of an ATO SMSF audit.

In the rest of this article references to SMSF audit fees are only to the financial and compliance audit of the fund and does not include preparation of accounts or submission of SMSF Annual returns.

Range of SMSF Audit fees

The most comprehensive analysis of SMSF audit fees I have seen is the Cooper review of the Superannuation system. Cooper undertook significant analysis of SMSF’s including who had SMSFs, average balances, assets allocations and running costs (including SMSF audit). Set out below are three tables from the Cooper report.

SMSF Audit fees - auditor provides other services?

 SMSF Audit fee ranges Cooper report

Source  : http://www.supersystemreview.gov.au/content/downloads/statistical_summary_smsf/SMSF_statistical_summary_report.pdf

SMSF Audit fees compared to number of audits undertaken

Source : http://www.supersystemreview.gov.au/content/downloads/self_managed_solutions/self_managed_super_solutions.pdf

A couple of observations from the tables:

  • Fees generally decline with increasing volume of SMSF audits. This is to be expected and reflects increased efficiency which flows from increasing volume. SMSF audit specialists can justify the use of more specialised tools, specialised training and streamlined processes than can be supported by practices undertaking smaller SMSF audit volumes.
  • Fees are on average lower when the SMSF auditor provides no other accounting services. As noted above, SMSF audit specialists who undertake larger volumes of SMSF audits benefit from efficiencies flowing from use of tools and processes. Specialist SMSF Auditors compete only for the SMSF audit and therefore ensure their prices are market competitive
  • The data in these tables above based on years to 2008. Since this time regulators, including the ATO, have increased their focus on the quality of SMSF audits. SMSF Auditors are the ATO’s principal way of monitoring SMSF trustee’s adherence to SIS rules – the ATO does not have sufficient resources to closely monitor all funds itself and therefore has become increasingly reliant on the quality of SMSF audits. One consequence of this is greater monitoring of SMSF auditors (particularly regarding independence) and more rigorous application of SMSF Audit procedures by those providing these services – SMSF auditors are going to protect their professional reputations (and their businesses) by ensuring that all SMSF audits are undertaken thoroughly & competently.

In summary, whilst many Trustees are not thrilled at having to pay an annual SMSF audit fee, it should be more than just a tick in the box. A competent, genuinely independent  SMSF audit helps ensure their SMSF is well run, remains fully compliant and minimises the risk of potential breaches and ATO audits.

  1. bob meadleybob meadley05-09-2012

    Auditing of drawdown funds should be a lot simpler. Most are simple with a few shares and term deposits a very little turnover. Likewise many accumulations funds. It seems like trade unions can escape audits judging by the latest political dramas. Are super fund audits really an audit of honest people??

    • Tim DelaneyTim Delaney05-09-2012

      Bob – I understand your view that Super Fund Audits are largely an audit of honest people. For people who comply with superannuation rules and are up to date with legislative changes the annual SMSF audit adds little value (however, it should result in a lower SMSF audit fee than incurred by funds where problems are identified). In fact, ATO statistics indicate that only 1-2% of SMSF’s per year are subject to audit contravention reports (ie they have breached the rules). The ATO does not have the resources or skills to check the 430,000 SMSF’s in existence and is therefore reliant on SMSF auditors to monitor trustee compliance with the rules. As part of this process the ATO imposes significant legislative requirements on SMSF auditors that must be satisfied (eg SMSF auditors need to confirm the Trust Deed is complying – I doubt many trustees have read their Trust deed recently) so even complying funds with few transactions require a certain minimum quantity of work.

      That said, the ATO, and most SMSF Auditors, view trustee education as an important component of their work. SMSF auditors should provide SMSF Trustee’s with a mangement letter at the end the audit identifying any issues and procedures which can be improved – by doing this I hope to ensure my clients never breach the superannuation rules and suffer the resulting consequences. In short, the audit should be more than just a tick in the box.

DIYSuperAudit : Self Managed Super Audit Specialists : SMSF Audits : TOLL FREE 1300 733 159