What Is An SMSF Audit

Planning for your retirement is a challenge, even with all of the different options you have available to you. A lot of Australians elect to set up a self-managed super fund (an SMSF) to handle their retirement savings, but the process is pretty demanding. Any SMSF needs to be fairly large to sustain itself and grow while taking care of its own operating expenses. The question “what is an SMSF audit” is likely to come up early in the planning stages, and you need to make sure you understand the answer.

smsf audit

So What Is An SMSF Audit, Anyway?

The rules that govern self-managed super funds place you under some fairly tight reporting obligations (see below). The annual audit is an independent review of all of the fund’s activities over the past year. The professional who does the audit looks for both compliance with all the SMSF rules and regulations set forth by the ATO and also confirms that the fund’s trustees have behaved according to the rules of your trust deed.

Rules And Regulations That Apply To The Auditing Process

You may be interested to note that although it’s a legal requirement, the annual SMSF audit is actually delivered to the trustees (i.e. you and anyone else in the fund) rather than to the ATO. You still have an obligation to address any irregularities that the auditor uncovers, but there’s no direct notification of the government. The auditor will check all of your fund’s financial records for full compliance with the SISR, the Superannuation Industry (Supervision) Regulations.

Auditors themselves have to pass some basic requirements in order to be eligible to audit your fund. You auditor can’t be a relative or associate of any trustee, and he or she can’t have taken part in preparing any of the financial records reviewed in the audit. Trustees are obviously not allowed to audit their own SMSFs, but an auditor can also be disqualified for a financial connection like being on a corporate board with one of the fund’s trustees.

Who Handles Audits For SMSF

The restrictions outlined above keep SMSF auditors free of conflict and insure that they can evaluate your fund in an unbiased manner. Auditors also need special training and certification to complete an audit properly. The key credential is certification with ASIC, the Australian Securities & Investments Commission. Approved auditors have an SMSF auditor number (SAN) that must be attached to the audit report.

While complete the training and certification process for auditing self-managed superannuity funds is not particularly difficult for a competent financial professional, most individuals who achieve and maintain ASIC certification tend to concentrate exclusively on auditing work. This proves to more cost-effective for them based on the rules preventing conflict of interest; auditors are generally called in only to handle the audit itself.

How Much Do Audits Cost?

Now that you’ve gotten a fair idea of the answer to the question “what is an SMSF audit,” you may be wondering exactly how much an audit costs. This is a yearly expense, after all; you don’t want a service fee to take a significant bite out of your fund’s profits! Unfortunately, the introduction of the ASIC certification and changes to the relevant legislation has sent auditing costs up all over the country.

Speaking very broadly, the cost for a full audit by an certified professional typically falls between $500 and $1,000. Fees as high as $2,000 are possible for particularly large and complex funds. On the other end of the spectrum, many “discount” auditing services are available to prepare very basic reports for simple funds, and these low-cost auditors typically charge $400 or less.

Auditing As Part Of A Full SMSF Service Package

Obviously, a self-managed superannuity fund is not something you set up on the spur of the moment. You need to consult closely with a good financial advisor to confirm that it’s the best way for you to save for your retirement. Many people who decide to launch SMSFs entrust them to full-service financial management companies who handle all of the record-keeping, including preparing tax returns and having the fund audited. (Most good managers can hold the annual expenses of a SMSF under 1%.)

In order to comply with the independence rules described above, these full-service SMSF management companies have to sub-contract out the actual auditing work. This makes the process more expensive, but it prevents conflicts of interest and guarantees the accuracy of the audit report.

As you can see, SMSF auditing is a fairly complex process! It’s just one of the many factors you need to consider carefully before making your retirement plans. If you have great enough financial resources to devote to it, a self-managed fund can be an excellent savings plan; just remember that the yearly audits and other reporting obligations will incur a continuous cost!