Treasury floats idea of SMSF trustees self-assessing eligibility for 3-year audit


A discussion paper was issued by Treasury in the first week of July, titled “Three year audit cycle for some self-managed superannuation funds”. Among the more contentious proposals was that trustees should be able to self-assess their eligibility to conduct audits every three years, as opposed to the current standard of a yearly audit.

The basis for eligibility will depend, the discussion paper states, on funds toeing a yet-to-be determined line on good record keeping and compliance, which would include timely lodgement of SMSF annual reports (SARs) and three consecutive years of clear audit reports. An audit will be required however in a year in which a “key event” occurs, which would include starting a pension or an LRBA, the addition or removal of a member, transactions with a related party or receipt of non-arm’s length income.

Timely SAR lodgement however is something that is yet to be determined, with the Treasury paper flagging range of options for what constitutes “timely”. These being:

  • never submitted a late SAR
  • no late SAR in last three years
  • no outstanding SARs.

The final definition could however have quite an influential outcome on eligibility, as data the ATO holds indicates that about 40% of trustees have submitted a late SAR on at least one occasion in the three income years of 2013-14 to 2015-16.

The 3-year audit option is planned to be open from 1 July 2019.

The paper has also been issued as a method to gauge reactions from the marketplace. As a tool in the consultation process, the paper posits the following questions:

  1. How are audit costs and fees expected to change for SMSF trustees that move to three-yearly audit cycles?
  2. Do you consider an alternative definition of ‘clear audit reports’ should be adopted? Why?
  3. What is the most appropriate definition of timely submission of a SAR? Why?
  4. What should be considered a key event for a SMSF that would trigger the need for an audit report in that year? Which events present the most significant compliance risks?
  5. Should arrangements be put in place to manage transition to three-yearly audits for some SMSFs? If so, what metric should be used to stagger the introduction of the measure?
  6. Are there any other issues that should be considered in policy development?

SMSF professionals are invited to respond to before the end of August.

Tax & Super Australia member Robert Lopez, a registered SMSF auditor, says he supports the move, however adds: “While the 3-yearly audit cycle is a so-called ‘red tape reduction measure’, in many areas of SMSF law and regulations, things are moving in the opposite direction,” he says. “The new TBC rules are a good example. Complex, hard to follow, onerous and introducing a whole new tier of reporting and red tape. Such changes are negative factors for audit integrity, yet Treasury seems to be legislating to reduce the level of audit review as if the opposite were true.”

Robert argues that key guidance is sorely needed. “I would argue that 95% of an audit is not creating an audit report but the audit itself (the back-end work),” he says. “If you are about reducing red tape you will not get far if you fail to create new auditing standards for a three-year cycle.”

He also points to the very real possibility of industry disruption. “Work flow planning may be a problem for firms whose primary income are SMSF audits, (and) such firms will need some type of lodgment program to spread their workload.”

“My problem is I am an accountant, run a small business and see things through the prism of efficiency and simplicity,” he says. “The tax agent (who is licensed, must meet education requirements, and has fiduciary obligations to both the ATO and clients) checks off a list of events before lodging an SMSF return. Pass that check list and no audit is required.”

Robert also sounds a note of despair. “The problem with the tax agent gateway model above is that it is far too simple and efficient — it would slash red tape. The problem with the Treasury approach is more complexity and most likely an increase in red tape,” he says. “The solution is obvious, but one assumes Treasury will stick with the latter.”


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