The proposal in the Federal Budget to change the requirement for SMSFs to have an annual audit, moving instead to a three-year auditing cycle, has been met with mixed reactions. We can see several potential issues with this proposal.
SMSF trustees are responsible for their own funds and are therefore accountable for their actions. Audits require trustees to conduct a self-assessment to qualify for the change to three-yearly audits. The measure will apply to SMSF trustees with a history of three consecutive years of clear audit reports and who have lodged the fund’s annual returns in a timely manner.
While the idea of not having to audit every year sounds appealing, it also opens trustees up to a greater risk of non-compliance. Not having an audit in year one and two increases the risk that errors are not picked up early and are therefore carried on into subsequent years. This also means an increased amount of work in the third year, therefore somewhat negating the benefit of less work in previous years.
Unlike a yearly audit, three years allows trustees to potentially ‘switch off’ and ignore compliance aspects. This could also mean trustees will not seek professional help and advice as regularly, which has the potential to lead to larger and more complex problems and longer non-lodgement time frames. If this becomes a prevalent issue, regulations may then be tightened further, leading to more pain for existing fund holders.
We will continue to monitor these measures which are intended at this stage to commence in July 2019. As always we will keep you informed of any potential changes or impact on your fund.
Please note that the advice is general advice only and does not take into account your individual circumstance, so please make a time to talk to our team or your financial planner about your situation and let us help you put your mind at ease about your Superannuation.