What is the best SMSF Audit firm?
The audit is a key component of having an SMSF and knowing what to look for in a good audit firm is essential. Many accountants work closely with their auditor throughout the year rather than just handing over the fund records after the end of the financial year. Let’s cover some of the considerations in choosing the right auditor.
Expert knowledge - keeps you out of trouble
SMSFs are a highly specialised area of superannuation and subject to frequent legislative changes. An auditor who specialises in SMSFs is likely to be more competent than one who has a broad understanding of audit issues. Consider the following example.
During a recent audit of an SMSF that owned a commercial property, we found that it had been reported in the financials at $1M for the last 10 years. The fund
accountant noted the property had always been valued at cost upon the request of the trustees. As all fund assets must be valued at market value, an
independent valuation was requested to confirm the market value. The valuation report noted the property value had increased to $6.5M and the financial
statements were amended accordingly.
It is quite possible that a $5.5M revaluation and the SMSF quadrupling in size during a single financial year will raise interest from the ATO. What will this mean for the trustees and the fund accountant? Can they simply say they were not aware of the requirements? Can they just point the finger at the prior year auditor? Ultimately it is the trustees who are responsible for the compliance of the SMSF. Not being aware of the compliance requirements generally doesn’t fly with the ATO.
Ultimately, a good auditor is likely to keep you out of trouble.
Bare minimum or competitive advantage?
Are you just after the audit report or are you looking for an audit firm that contributes to the level of service you provide to your clients?
It is a common misunderstanding that the auditor checks ALL the work done by the accountant. The audit is limited to the items outlined in the audit report. Did you know it excludes the annual tax return? It is the accountant’s responsibility to ensure the figures from the audited financials are transferred onto the tax return and lodged with the ATO.
The audit consists of two parts, the financial audit and the compliance audit. For the financial audit, materiality is often set at 5% of the value of the fund. Examples of common immaterial financial errors are:
contributions or benefit payments allocated to the wrong member
incorrect balances being reported for an investment
investments that have become worthless still being included in the financial statements
Auditors often don’t pass on immaterial financial errors if they do not impact the audit opinion. Communicating them just takes up extra time.
Talk to the auditor to understand their process and ensure it aligns with your expectations.
Are they a good communicator and proactive?
A good auditor will raise potential future problems as part of the audit process so they can be addressed before they turn into compliance issues. Most compliance breaches are not intentional, but simply the result of not being aware of the compliance rules.
Make sure your auditor tells you about legislative changes that may impact the audit process.
Unless you are also a professional SMSF specialist, it can be hard to keep up to date with the regular ATO announcements and legislative changes.
Understanding what the auditor needs and why will avoid time spent back and forth between the trustees, accountant and auditor. Ask your auditor for a checklist so you know exactly what to provide to get the audit done in a timely manner at a reasonable cost.
What are their costs?
If something seems like a bargain it can be too good to be true. Firms that advertise a low base fee, may add additional fees to recoup their cost.
When the auditor charges a fixed fee, this will still be linked to time spent. The number and type of investments will also impact the time spent on the audit.
Keep in mind that a lot of the work auditors do is not clearly visible, such as documenting the audit process and obtaining further information on investments directly from third parties.
When an auditor does a poor job there’s a high risk of them losing their license or getting sued. Every auditor will have their files reviewed by the ATO or their professional body at some stage. It is essential to have a comprehensive audit file.
Ask your auditor for a checklist, supplying all the information they need upfront in an organised manner will likely reduce the time spent on the audit and therefore cost.
What size audit firm is best?
There’s an upside and downside to most things in life. Small firms may not have the capacity to service large accounting practices. Large firms may work a bit like a factory. This can work well for large accounting firms but not so well for those who require personalised attention.
Determine what size audit firm suits you by considering how they balance efficiency, turnaround time, specialised knowledge and personalised attention.
Is your data safe?
How does the audit firm leverage technology and what platform is used to receive and store documents? It’s important to understand their audit process. Who does the actual work and where? Make sure your auditor gets the balance right between leveraging technology to save time and applying their experience, individual oversight and judgement.
What do their existing clients say?
Have you ever exaggerated your skills during a job interview? Most companies will do the same when it comes to potential clients. Don’t take their word for it, obtain references and ask to speak with some of their existing clients. Look for an audit firm that has a good working relationship with their existing clients.
How can Red Willow Super help you?
We would love to help you, whether it is with completing SMSF audits, providing compliance support or delivering technical SMSF training.
Our team has extensive experience which means we can assist with a range of SMSF issues.
We have assisted many accountants, advisors and trustees with compliance issues. Let us be your competitive advantage.
Want to find out more? Check out our website, call us on 1300 920 2230 or email support@RedWillowSuper.com.au
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