Annual SMSF Audit - Why Quality Counts
Financial security and independence are two of the most popular reasons that Australians are turning towards SMSFs in their droves. There is no doubt that managing your super fund is as appealing as it sounds for those dedicated to spending their retirement in affluence.
While freedom is key, there is one area that an SMSF owner must relinquish control and that is the dreaded annual audit. We use the word dreaded because it's no secret that stereotypes of dull auditors with their lengthy, drawn out stories and inside (cue not funny) jokes are rife within the industry.
ATO crack down on illegal SMSF tax schemes
The ATO has encouraged self-managed retirees to expose dodgy SMSF practitioners that are pushing illegal tax schemes and giving the industry a poor reputation. After identifying a significant number of retirement planning schemes that were created purely to help people avoid tax as opposed to providing retirement benefits, the ATO is looking to close down the schemes with the help of SMSF retirees.
The Deputy Commissioner Michael Cranston has joined forces with trustees who have fallen victim in the rogue schemes in an effort to work together to shut down dodgy schemes and put an end to schemes that pose a risk for retirees and their retirement savings.
ATO Report Released - Top Contravention Areas for SMSF
The ATO has released valuable data that outlines where the highest proportion of contraventions occurred in the previous financial year and how many have since been rectified.
The review has shown that 7,900 SMSF's had auditor contravention reports lodged with a total of 20,500 contraventions.
The report shows there has been a decrease compared to the previous year of 4% in the number of SMSFs with an ACR and a decrease of contraventions by around 7%. Just under half of those contraventions reported to June 2016 were reported as rectified.
ATO Targeting Low-Cost SMSF Auditors
The ATO is beginning to target low-cost self managed super fund auditors in an effort to ensure audits are undertaken thoroughly and efficiently.
Low-cost auditors require a high turnover of work to make ends meet which is leading the ATO to examine whether the individuals are examining contraventions closely enough.
Automated data feeds a 'double-edged sword' for auditors
A recent article in SMSF Adviser suggests automated data feeds have both a positive and negative effect on the accuracy of client data.
Automated data feeds have led to efficiency improvements for auditors processing SMSFs however at the same time they are causing some significant headaches for auditors and are compromising the accuracy of data, making data feeds a ‘double-edged sword’ for auditors.
Auditors should be careful to not take data feeds at face value and ensure that when tracked information is provided by feeds, the information is manually checked and verified to ensure it is correct.
SMSF auditors should be checking data feeds to ensure there are no gaps where data feeds may have dropped out and should also ensure time frames and bank statements cover the correct periods.
As well as this, SMSF auditors should be checking that assets and bank accounts for the funds are correctly recorded and that the balances on bank statements all match.
While automated data feeds are saving a great deal of time for SMSF auditors it’s important to be aware that processes & audit steps should still be followed and the verification of information is critical to ensure all the funds that have passed through the SMSF are genuine and correct.
See original article here
Buying investment property via your SMSF
While is it relatively unknown; it is possible to buy investment property in your SMSF. As well as being able to buy property with your SMSF, it is also possible to borrow money using a limited recourse borrowing arrangement. This arrangement means that the lender only has "security against the single property investment and not the other assets in the super fund".
Borrowing for SMSF property has quadrupled over the past 18 months, while it has grown in popularity, the take up is not as high as expected. This may be due to a glut in the market as rents fall, prices stagnate and supply upstages demand particularly in the unit markets in Sydney, Melbourne, and Brisbane.
Crack down on auditor independence by ATO for 2016/17 FY
The ATO has been clear that risks to independence are a focus in the 2016-2017 financial year, as is the assurance that SMSF auditors are complying with all of the independence requirements set out by the APES Code of Ethics for Professional Accountants.
Here are a number of key threats to auditor independence which are being focused on by the ATO in the current financial year:
Self reviews This is the threat of an SMSF auditor who also acts as a tax agent for the fund. Self-reviews are a threat to independence and auditors are required to safeguard independence and remove themselves when they are concerned about compliance.
Reciprocal audits The process where an auditor will audit their auditor’s fund. This process can lead to self-interest threats and creates a disincentive to question the other practitioner’s work. ASIC and the ATO have an issue with reciprocal audits and require a third party that is independent to undertake an objective audit.
Ensuring there are no breaks in the SMSF Documentation Chain
It’s important to be aware of the fact that any weak links in your client’s SMSF documentation chain could break their entire estate plan.
SMSF specialists have a duty to keep things on track and ensuring estate planning documentation is in order is essential.
It is critical to review all of the documentation for the SMSF, not just the deed but the entire chain of documents. While the trust deed is important, it is important to check the previous documents to ensure there are no issues in the paper trail and the latest documents are valid if changes have been made.
What documents should be in your SMSF estate planning file:
Focus on market value valuations for SMSF assets
The rules surrounding valuations for SMSFs have seen a range of changes over the past few years and it's vital that practitioners are across the various requirements to ensure their clients are legally protected.
Prior to 7 August 2012, trustees of SMSFs had no legal obligations to value their fund assets at market value, unless the fund was paying a pension and although SMSFs were encouraged to use market value for the purpose of preparing financial statements, it was not a legal requirement.
SIS Regulation 8.02B came into force on 7 August 2012, this amendment requires trustees to value each fund asset at its market value when preparing the annual financial statements of the fund.
Market value is defined in the SIS Act as being “the amount that a willing buyer of the asset could reasonably be expected to pay to acquire the asset from a willing seller if the following assumptions were made:
i.) That the buyer and the seller dealt with each other at arm's length in relation to the saleii.) That the sale occurred after proper marketing of the asset;iii.) That the buyer and the seller acted knowledgeably and prudentially in relation to the sale."
Lost Fund Records - what can be done?
Lost fund records & historical records are a common issue approached by accountants and auditors particularly in the areas of SMSF.
While they can be tracked down via the fund’s trust deeds, there are some details which cannot be found including Applications for Membership, Consents to Act, Declaration as to Status and Trustee Declarations.
What should be done for each of these records is outlined below:
Misuse of SMSF auditor numbers surfacing via ATO
A number of auditors have approached the ATO with serious concerns their auditor numbers are being misused on SMSF annual returns they were not responsible for.
This startling revelation has been revealed as the ATO admits there is nervousness from within the SMSF auditing community that misuse is being detected due to administrative error but also misappropriation of auditor’s numbers.
In an act to monitor the misuse, SMSF auditors can email the ATO directly to be sent a list of the annual returns on which their numbers have been recorded allowing a more stringent monitoring of SMSF number use. Due to privacy reasons, this list cannot be sent automatically to auditors and should be manually requested by each SMSF auditor.
New SMSF regime spells change for accountants
The roll out of the new SMSF regime will make it mandatory for accountants to refer new clients to a specialist SMSF advisor if you don't have your AFS licence.
Accountants should be aware of the implications of the changes and how it will affect the way they offer SMSF advice to clients. Namely, accountants will no longer be able to provide SMSF advice for clients without an AFS licence and while they will still be the primary contact their clients, the customer will need to seek the support of an AFS licenced specialist financial advisor to manage their SMSF.
Options for accountants under the new regime include:
- Refer all SMSF enquiries to an Authorised Representative (AR)
- Limited AFSL and appoint ARs
- Become an Authorised Representative
- Stop providing SMSF advice
New SMSF returns are due 28th February.
As most of the industry will be aware, the annual return for new SMSFs is due on the 28th February 2017. If you’re in the process of arranging an annual return for a new SMSF, there are plenty of things to keep in mind.
Considerations such as whether the SMSF needs to lodge, any establishment costs and the status of the fund should be reviewed ahead of this deadline.
How do you know whether you need to do an annual return for a new SMSF?
Due to the fact that SMSFs are a type of trust and deposits of cash are made into a super fund bank account, a new SMSF will require financial statements and tax returns regardless of the size of the fund.
All SMSFs need their financial statements audited annually by a registered super fund auditor for compliance and with the 28th February deadline looming it’s important that any new fund gets their return organised to ensure no red flags are raised.
Putting the 'fun' back into superannuation funds
Saving for retirement might not be one of the most exciting things to think about, but it’s time to put the fun back into super funds.
Let’s face it, the world of superannuation can be dry to say the least, but preparing for retirement doesn’t mean you have to be boring.
Many people are now choosing some ‘unique’ names for their super funds. And why not? Planning for retirement is hard enough if you can raise a smile from your super fund you’re on to a winner.
Here are some creative super fund names that made us smile:•Super Duper Fund•Cup of Tea Super Fund
SMSF changes imminent for collectables
SMSF's that hold collectables or personal use assets including paintings, coins, antiques, artifacts, memorabilia, recreational boats, jewellery, books, wine or motor vehicles acquired before 30 June 2011, should be aware of significant changes that will take effect on 1 July 2016.
A new set of rules will be rolled out for SMSF’s and investors should be aware of the rules to protect their investment and ensure their collectables have the appropriate level of documentation, insurance and legal support.
Collectables are a great way for individuals to invest ahead of retirement and while they don’t provide immediate benefit, they are an attractive investment for self-managed super funds.
SMSF compliance - balancing automation with price pressures
Managing compliance requirements with the rise of automation and price pressures can be a serious balancing act for SMSF auditors.
As auditors experience the pressure to reduce their audit fees to meet with a competitive market, there is an increased pressure from the ATO and the Australian Auditing Standards to maintain the same high level of integrity and quality. This pressure is a challenge for auditors who are already under pressure to master & comply with new technologies. SMSF accountants and administrators are embracing the cloud-based technology integration of electronic data feeds, which provides more efficient ways to gather and share real-time data. These real-time feeds provide valuable information about fund information as it happens.
SMSF trustees exposing themselves to compliance risks by using personal bank accounts
A recent article in SMSF Adviser has provided an overview of the issues some SMSF trustees are facing by exposing themselves to potential compliance risks by paying fund expenses from their personal bank accounts.
SMSF trustees should be aware that there are severe consequences should these payments not be rectified before the fund is audited. While some of these funds might be only small amounts when it comes to audit time, they usually reach a reasonable amount and as such, they need to be paid out of the fund rather than a personal bank account.
While it can often be an honest mistake, if the issue continues to occur then it can become a compliance issue for SMSF trustees.
Vice is tightening on SMSF auditors
With ASIC having an online register of all registered SMSF auditors as well as a list of those suspended, pressure is on for auditors within the industry to make sure all superannuation laws, regulations and codes of practice are carried out precisely.
ATO is currently working with the Tax Practitioners’ Board (TPB) and ASIC to establish clear boundaries and are looking at the various threats to independence as outlined below.
Reporting an irregularity within a company fund, especially if this is an auditor’s only or largest client puts the auditor in an invidious position – by obeying the law he could also be putting himself out of work. The same dilemma is placed on an auditor who obtains referrals from a large client. Reporting an irregularity in that client’s fund is likely to cause the cash cow of referrals to dry up. Close personal relationships with the trustees, the accounting team or members of the fund being audited calls independence into question, particularly if it is a family or business relationship. This also holds true for staff who have left a company to begin their own practice then go back to perform an auditing function - reporting former colleagues just doesn’t seem “cricket”.