The Role of Accountants in SMSFs
The Role of Accountants in SMSFs
by Chris Malkin, WHK Horwath
Released February 2009
can accountants increase their penetration of the expanding self managed super
program advances the view that increasing disenchantment with commission-driven
advisors and ‘product’ providers - and the global financial crisis - have
resulted in a significant business opportunity for Accountants practicing in
covered in the program include:
Accountants can do for their clients’ SMSFs - how much value a pro-active
accountant can add
current approach and priorities of the ATO as regulator of self managed
competency and reporting requirements
FSRA regime as it applies to superannuation
The comments in
this paper are intended to be general comments only and do not, nor are they
intended to, constitute financial advice. The author, Chris Malkin and/or WHK
Horwath and the WHK Group Ltd take no responsibility for any loss or adverse
consequences arising from this paper.
The Role of the
Accountant in SMSFs
What are expected
of Accountants in the SMSF administrative environment? How should they fulfill
their roles? How can they become more pro-active?
accountants have been seen as finance professionals who assist clients in their
compliance obligations for taxation, corporate law and regulation, accounting
and reporting as well as provide advice in respect to investment decisions,
business planning and growth, business advisory and audit.
frequently blamed for being re-active and often on the back foot – exacerbated
by the compliance needs of the increasing complex taxation and regulatory
environment and the demands of business. They are seldom seen as being
pro-active business advisers who have ample time to satisfactorily attend to
their clients’ affairs in a way that results in client applause.
aided by compulsory superannuation savings, has become a core business activity
for many accounting firms who provide licensed financial planning advice to
their clients’ self managed superannuation funds which the firm also
administers and often audits.
Many people have
become bamboozled by the plethora of wealth creation spin-doctors who they see
as being more concerned with feathering their own nests through the receipt of
commissions earned by selling complex managed investment products than building
long-term client wealth. The global financial crisis has lead people to question
the integrity of many advisers, particularly as they monitor, with alarm, the
decline in their superannuation and retirement investment portfolios.
uncertainty has resulted in a significant business opportunity for Accountants
practicing in the field of superannuation.
conservativeness of the Accounting Profession is becoming one of its most
significant benefits. People are again turning to qualified professional
accounting practitioners for sound, independent and understandable
superannuation, retirement planning and investing advice.
What does an
Accountant do in relation to clients’ SMSFs?
Before we consider
how an Accountant can improve the pro-activity of their services we must look at
what roles accountants have traditionally played regarding their clients’
retirement planning and superannuation needs.
include the provision of:
These include the
preparation of the superannuation fund’s financial statements, usually
utilizing proprietary accounting software such as BGL or Supervisor.
They must be
prepared with knowledge of the accounting standard applicable to superannuation
funds – AAS25 (although a SMSF, not being a reporting entity, need not comply
with the full standard – only the section relating to asset valuations at
The client trustee
also expects the accountant to draft relevant minutes, members’ statements as
well as the Annual Return which is now incorporated with the Income Tax return.
All of this is
usually a once-in-the-year involvement. It should not be. Because of the
importance of clients knowing and being able to monitor and drive their
retirement savings, their accountant should pro-actively seize the opportunity
to prepare quarterly, if not biannual accounts.
If the accountant
is not the fund’s administrator, they can play a value-added role in liaising
between the fund’s trustee/s and the fund’s accountant. The Administrator
will normally facilitate the purchase and redemption of the fund’s
investments, and will usually hold the fund’s cheque book. Although this
function is usually performed by the Accountant, in larger, APRA regulated
funds, it is usually a specifically designated specialist role which will also
involve the maintenance of members’ records.
Accountant cannot take any part in recommending on the investment process unless
that person is qualified under the provisions of the FSRA.
This advisor, who
may be the same person providing the accounting and administration functions,
must be licensed under the FSRA.
Advisor may advise the Trustees on their SMSF operations, draft the Fund’s
Investment Strategy, make investment recommendations, prepare investment
documentation and provide investment monitoring services (which may acquired
from outsourced providers).
As some of these
duties are those normally associated with a Financial Planner, the client will
need to agree on the method of charging for the services provided – whether on
the basis of time cost (fee for service) or commissions. The agreed fee will
normally be determined based on what other services are provided by the service
provider. The Accounting Profession normally encourages its members to charge on
the basis of fee for service.
The Accountant is
not usually engaged to perform the role of trustee unless the Fund is a Small
APRA Superannuation Fund (SAF). If
the Fund was not a SAF, the Trustee/Accountant would be required to be a member
of the Fund. Note that the Accountant could not be paid for trustee services
Although it is
unlikely that an Accountant will be employed to perform the role of trustee to a
SMSF, they can give guidance to the Fund’s existing trustees on their duties
as trustees, corporate governance of the SMSF, risk management, insurance, etc.
funds must be independently audited each financial year by an Approved Auditor.
The definition of
an Approved Auditor is contained in the Superannuation Industry (Supervision)
Act 1993 and its Regulations (SIS) under Regulation 1.04(2)(a).
For a SMSF, an Approved
Auditor is either:
Auditor (Div. 2 Part 9.2 of the Corporations Law); or
a member of
the CPA Australia; or
a member of
The Institute of Chartered Accountants in Australia; or
a member of
the National Institute of Accountants; or
a member or
fellow of the Association of Taxation and Management Accountants; or
a fellow of
the National Tax and Accountants Association Ltd; or
Auditor-General of the Commonwealth, a State or a Territory.
It is noted that
to audit a non-SMSF (a superannuation fund under the regulation of APRA), there
is the further requirement that the auditor also be a Registered Auditor.
A SMSF must be
audited at least annually. The audit must be completed by an approved auditor
who can demonstrate independence in accordance with the Codes of Professional
Conduct of the senior accounting bodies and is a person who cannot be part of
the decision-making process relating to the fund or its investments. For this
reason it is unlikely that the accountant who prepares the fund’s financial
statements beyond trail balance stage can also act as Auditor. Clearly, the
person who advises on the fund’s investments cannot audit that fund.
as Regulator of SMSFs – What is their current approach?
Their aim is to be
less visible to those superannuation funds who comply but highly visible to
those who don’t.
There are now
approximately 385,000 SMSF’s in Australia.
The ATO is
increasing its audit surveillance of these funds.
All breaches and
errors picked up during an external audit (whether rectified or not) must be
reported to ATO in first year of a fund’s operation.
According to the
ATO, there is increasing evidence that SMSF Trustees need focused training and
increased knowledge of their responsibilities.
The ATO uses the
information contained in an Auditor Contravention Report to initiate further ATO
The ACR system
provides the key indicator that SMSFs are complying with SIS.
ATO is also
following up ACRs.
According to the
ATO, major contraventions to date include:
loans made to
a member or a relative – breach of SIS section 65
assets not in
the name of the fund – breach of SIS section 52
in-house asset rules – breach of SIS section 71
requested by auditor not provided
purpose not allowed in SIS – breach of SIS section 67
breach of sole
purpose test – SIS section 62.
accountant can provide valuable services to SMSF trustees by assisting the
trustees to better understand their fund, their responsibilities as trustees and
members, and their compliance obligations.
perception of the external auditor and the audit process
The ATO believes
that financial audits are well conducted, however, are concerned that the
compliance audits are lacking in depth. They are concerned with the deficient
knowledge of the legislative requirements of some auditors.
They are also
concerned that some auditors are not independent or are not auditing the fund in
accordance with Australian Auditing Standards.
Many auditors are
not using proper, well constructed auditing programs or are issuing management
letters pointing out audit concerns to the fund’s trustees. Many are not
issuing engagement letters or requesting representation letters.
The ATO expects
auditors to comply with Australian Auditing Standards, the independence criteria
of the senior accounting bodies, maintain adequate audit working papers, report
contraventions to the ATO and make working papers available to the Regulator.
The ATO is
disciplining and penalizing auditors who do not comply with the legislation or
expectations of the ATO.
Auditor and the new Competency requirements
Effective 1 July
2008, the Approved Auditor and all staff performing an audit must meet the new
competency standards of CPAA and the ICAA .
completing 30 hours of structured training in superannuation over each 3 year
Certificates and the Approved Auditor
Where the Approved
Auditor is signing off an audit in their own right, they must hold a Public
Practice Certificate as well as meet the new competency standards.
Where an Approved
Auditor is signing off on behalf of the firm, the Principal responsible must
hold a Public Practice Certificate.
In summary, the
Auditor’s Report applying to audits of SMSFs from 1 July 2008 has the
following changes: Refer NAT11466.07.2008
4 or less
and trustees must be the same people: members equal trustees, trustees
member Fund rules: A trustee cannot be an employee of a member (unless a
they are a relative)
cannot be paid for trustee services.
accounting records to be kept for 5 years
prepare P&L & B/S & if 2 or more trustees, accounts must be
signed by 2 trustees.
Trustee to provide documents to the auditor within 14 days of the
S.104A - 21
days for trustees to sign Trustee Declaration when they first become a
trustee. (NAT 71089)
sections have been removed: S.106 (adverse events), S.111, S.112,
S.113(1A) – the last 3 related to accounting and the keeping of records
Contravention Reports from 1 July 2008
focus: contraventions, significant breaches
and new funds.
New ACR form
and instruction has been produced.
Can lodge the
ACR by paper or via the electronic program.
ACR is event
based. Auditors report contraventions for an event.
An event is something that may lead to, or has led to one or more
to apply tests which will determine the sections and regulations that must
to report all prescribed contraventions for new funds (less than 15 months
old) – the is no concept of materiality.
1: Fund definition test – re S17A
2: New fund test – if SMSF is less than 15
months old, report all breaches
3: Trustee behaviour test - Has the trustee
previously received advice of a contravention that they have breached again?
4: Trustee behaviour test – a contravention
from a previous year that has not been rectified at the time of the audit
5: Trustee behaviour test – statutory time
period failed by more than 14 days.
6: Financial threshold test – 5% in-house
7: Financial threshold test - $30,000 rule
8: Professional judgement
reportable SIS sections and regulations
The following is a
listing of sections and regulations of the SIS legislation that must be reported
via an ACR if the section of regulation has been breached:
S17A - SMSF
Trustee to provide documents to the auditor
Separation of assets
S62 - Sole
S65 - Lending
or providing financial assistance to members or their relatives
Acquisition of assets from related parties
Borrowing by the fund
S82 - In-house
assets – exceeding in-house assets ratio
S83 - In-house
assets – prohibition on further acquisition
S84 - In-house
assets – reasonable steps
S85 - In-house
assets – avoidance schemes
S103 - Minutes
Investments to be maintained on an arm’s length basis
Disqualified persons not to be trustees R4.09 Investment strategy
Restriction on payment of benefits
Acceptance of contributions
Charges over assets of the fund
New ITR and
questions for the year ending 30 June 2008
The revised income
tax return for the year ending 30 June 2008 contains questions that the trustee
must answer. The following is a summary.
The date the
audit was completed
$150 levy is
part of ITR
contributions for members via new ITR
Has the SMSF
had financial involvement with related parties?
"in-specie" contributions been made to the SMSF?
Has the SMSF
lent money to members or relatives?
investments been on an arm's length basis?
Has the SMSF
allowed members access to benefits before retirement?
trustees paid themselves for their services?
Have any of
the trustees become disqualified during the year?
assets been secured through appropriate documentation as being owned by the
Has the SMSF
been engaged in selling goods and/or services?
auditor provided services other than auditing the fund?
FSRA and Super
A person must be
licensed in accordance with the requirements of the Financial Services Reform
Act if they advise on, or recommend a financial product (which includes a self
managed superannuation fund), advises a member of a superannuation fund to
commence a pension stream or gives specific advice on investment strategies or
who are licensed under the FSRA have the ability to provide a wider range of
professional services than those who are not licensed. The general public is
increasingly looking to the accounting profession to provide “one-stop-shop”
advisory services, so increasingly, accountants are seeking licensing in order
to provide investment advice.
The provision of
accounting services to superannuation funds is involved and requires adherence
to increasingly complex legislative and regulatory requirements. This opens
significant opportunities for accountants who want to provide important and well
appreciated accounting, auditing and financial planning services to their
superannuation clients. Pro-active
accountants will benefit from providing valuable assistance to their and will
derive considerable satisfaction from so doing.
at least 5 areas of services which accountants can provide to SMSF clients.
relation to what kind of small super fund can an accountant act as trustee -
and subject to what constraints?
can be the auditor of a self managed super fund?
auditor can be part of the decision-making process relating to the fund or
its investments, so long as they absent themselves from decisions where they
have a personal conflict.”**
True or false?
are the main areas of contravention which the ATO has identified to date
regarding auditing of SMSFs?
the new competency standards of CPAA and the ICAA which the Approved Auditor
and all staff performing an audit of a SMSF must meet.
From 1 July
2008, the Auditor’s Report for audits of self managed funds is subject a
number of changes.