The 2018 federal budget has now been handed down and we can all breathe a sigh of relief there were no massive changes to the superannuation sector this year. Instead the measures announced could be considered as system fine-tuning around the edges.
Yet for SMSFs there were two really significant announcements. One was the ability to have a maximum of six members rather than four in a fund from 1 July 2019. The other was to allow SMSFs with a good reporting and compliance history to move from an annual audit requirement to a three-yearly audit cycle.
Most commentators acknowledge the first announcement is likely to have little initial impact, but there has been considerable angst in the sector regarding the second one.
When assessing the new audit cycle on face value, the government’s intentions can be seen as positive. It’s a move designed to cut down on the compliance costs associated with running your own superannuation fund.
However, deeper examination would reflect an inherent misunderstanding of just how important the audit process is in general and especially for SMSFs, and seems to fly in the face of previous initiatives in this area.
Back in 2013, all SMSF auditors were required to be registered with the Australian Securities and Investments Commission to improve the integrity of the audit process within the sector.
Since then a review of the register has been performed on a yearly basis with a significant number of auditors being struck off the list. Most recently it was reported the registration of 117 SMSF auditors was revoked as a result of these practitioners not lodging their annual statements.
In addition, there have been independence issues with some auditors still auditing their own funds, as well as fraudulent practices of falsely stating an SMSF has been audited by a particular approved practitioner.
These examples all suggest there are still issues in the SMSF auditing world that require attention before you can really say the system is working like a well-oiled machine. The point being relaxing the stringent SMSF audit requirements could seriously compromise the integrity of the whole sector.
But these specific items aside, the audit function performed on any business is a critical element of making sure the proper checks and balances are in place to ensure the presence of good governance. I don’t think anyone could argue it would not be considered best practice to do so.
Again, it stands to reason slackening off this measure would potentially damage how robust the sector not only is, but is perceived to be.
Further, if an SMSF does switch to the extended audit cycle, three years is a long time to allow errors to exist without detection, meaning what could start out as an insignificant breach has the potential to escalate into something catastrophic.
Compliance issues can certainly not be considered simple in the SMSF world, especially post the super reforms, so any procedures ensuring mistakes can be detected sooner rather than later should be seen as a good thing.
Again, while the intentions of cutting down administration activity and red tape are positive, the measures cannot be introduced if the integrity of the sector is compromised.
As the saying goes, good intentions are not always good enough.