The National SMSF Conference 2010 is continuing today and I’ve been having a great time attending sessions and meeting members. Feedback has been really valuable – members really appreciate the opportunity to hear from experts and build up their skills in the SMSF sector.
Yesterday, I attended a panel session on auditor independence. Interestingly, during the Q&A session, panellists were asked why do we need to audit SMSFs at all? While the answer may seem obvious to members, it may not be for some of your clients.
The first and most apparent reason to audit SMSFs is that it is required by law. However, while not all laws appear to stem from sound policy principles, I believe this one does. There are some good reasons for auditing SMSFs, not least of which is that it is in the public interest.
As you know, an SMSF has access to significant tax concessions. It is therefore essential for the public (and the regulator) to be comfortable that each fund abides by the law to ensure paying tax remains a fair and equitable process for all. An independent audit is an important part of this process.
What many people don’t realise, however, is that many SMSF trustees find a lot of value in the audit function. An auditor can provide independent and beneficial advice for trustees, extending their service beyond the role of compliance to one which helps trustees keep their fund on track and address any areas of concern as they arise.
The SMSF sector continues to show strong growth. The audit function is central to ensuring SMSFs can be used (not abused) effectively to maximise retirement savings for many Australians.
What do you think? Do you find auditing SMSFs a positive process?
Friday, September 24, 2010
Thursday, September 23, 2010
National SMSF Conference - opening thoughts
What a great start to the National SMSF Conference this morning! It’s taking place at the beautiful Hilton Hotel in Sydney and over 300 members are participating.
Neil Olesen from the Australian Tax Office kicked the morning off with an update on the regulation of SMSFs. He pointed out that in 1999, there were 190,000 SMSFs in Australia and today that number has increased to 430,000. This suggests that Chartered Accountants will continue to work with more and more SMSF trustees and the opportunities in this sector are growing at a considerable pace.
David Shirlow, the Executive Director of Macquarie Bank gave us all an update on superannuation policy developments. Happily, he doesn’t think a change in government minister (from Bowen to Shorten) will slow down the implementation of the Future of Financial Advice reforms and expects it to be effective from 1 July, 2012. David said the Cooper Review recommendations around SMSFs were generally positive.
I don’t entirely agree with David – I think some of the Cooper recommendations need a lot more scrutiny. Let’s not forget there are different ways of achieving the objectives Jeremy Cooper is trying to achieve in the SMSF space. More on that later.
There are more exciting sessions to come today and tomorrow. I am enjoying the opportunity to meet with members and to hear their thoughts and ideas on superannuation. Please feel free to share your views about the conference or SMSFs in general, either in person, via this blog or by email.
Neil Olesen from the Australian Tax Office kicked the morning off with an update on the regulation of SMSFs. He pointed out that in 1999, there were 190,000 SMSFs in Australia and today that number has increased to 430,000. This suggests that Chartered Accountants will continue to work with more and more SMSF trustees and the opportunities in this sector are growing at a considerable pace.
David Shirlow, the Executive Director of Macquarie Bank gave us all an update on superannuation policy developments. Happily, he doesn’t think a change in government minister (from Bowen to Shorten) will slow down the implementation of the Future of Financial Advice reforms and expects it to be effective from 1 July, 2012. David said the Cooper Review recommendations around SMSFs were generally positive.
I don’t entirely agree with David – I think some of the Cooper recommendations need a lot more scrutiny. Let’s not forget there are different ways of achieving the objectives Jeremy Cooper is trying to achieve in the SMSF space. More on that later.
There are more exciting sessions to come today and tomorrow. I am enjoying the opportunity to meet with members and to hear their thoughts and ideas on superannuation. Please feel free to share your views about the conference or SMSFs in general, either in person, via this blog or by email.
Friday, September 10, 2010
Stepping up for the National SMSF Conference
The Institute is hosting its first National SMSF Conference on 23-24 September in Sydney. It’s a timely event given the announcement of our new federal government. Presumably, the Cooper review now remains on the government’s agenda and with it, the recommendations that may impact on many SMSF service providers.
Change is not new to the superannuation industry and it’s fair to say there will be more. This event will help arm practitioners with the right information so they can prepare for any changes on the horizon.
If you remember, Jeremy Cooper reported that the accounting profession is best placed to deal with competencies in the SMSF accounting and administration space – this conference illustrates the Institute’s willingness to provide quality training events for its members and the broader SMSF community.
I’m particularly looking forward to the panel discussion at the end of Day One of the conference. The panel, made up of luminaries from the audit world, are holding a session titled, Auditor independence – where do you draw the line of independence? This is topical because of Cooper’s suggestion that “true independence” is required in the SMSF sector.
As I have said before, competencies and independence are important in any audit – not just in the SMSF sector. But while Cooper’s objective to achieve high levels of competencies and independence is to be supported, the question is, will his recommendations meet the desired objectives?
The panel discussion promises to shed some light on this. There will also be opportunities for delegates to ask questions, so I am interested to hear what others think!
Other highlights from the Conference include ATO presentations on issues of concern to the regulator as well as some insights into “auditing the auditor”. Updates on major areas of interest for SMSF service providers including borrowing, deeds, tax and practical uses for SMSFs will be invaluable. Importantly, everyone will have opportunities to network with others working in the SMSF world.
So come along, this is an opportunity not to be missed.
Change is not new to the superannuation industry and it’s fair to say there will be more. This event will help arm practitioners with the right information so they can prepare for any changes on the horizon.
If you remember, Jeremy Cooper reported that the accounting profession is best placed to deal with competencies in the SMSF accounting and administration space – this conference illustrates the Institute’s willingness to provide quality training events for its members and the broader SMSF community.
I’m particularly looking forward to the panel discussion at the end of Day One of the conference. The panel, made up of luminaries from the audit world, are holding a session titled, Auditor independence – where do you draw the line of independence? This is topical because of Cooper’s suggestion that “true independence” is required in the SMSF sector.
As I have said before, competencies and independence are important in any audit – not just in the SMSF sector. But while Cooper’s objective to achieve high levels of competencies and independence is to be supported, the question is, will his recommendations meet the desired objectives?
The panel discussion promises to shed some light on this. There will also be opportunities for delegates to ask questions, so I am interested to hear what others think!
Other highlights from the Conference include ATO presentations on issues of concern to the regulator as well as some insights into “auditing the auditor”. Updates on major areas of interest for SMSF service providers including borrowing, deeds, tax and practical uses for SMSFs will be invaluable. Importantly, everyone will have opportunities to network with others working in the SMSF world.
So come along, this is an opportunity not to be missed.
Tuesday, August 10, 2010
Banning in-house assets – the right solution?
It occurred to me that the Cooper Review panel’s recommendation to ban in-house assets (IHA) for SMSFs has failed to get to the core of the issue and has not given due consideration to the impact of other recommendations in the Cooper report.
The review panel made a recommendation that SMSFs should no longer be able to invest in IHA. The main reason they give is that these investments “provide an avenue for potential abuse”.
The ATO has indicated that generally where trustees are breaching IHA rules, they are REALLY getting it wrong; that is, they are investing hefty portions of the fund’s assets in IHA, far in excess of the 5% allowed.
The panel does not appear to consider the fact that prohibiting IHA may not actually change trustee behaviour. If trustees are already breaching the existing rule to limit IHA to 5% of the fund’s assets, why would a new rule prohibiting these investments change that behaviour? In my view, some of the other recommendations may provide a better solution.
For example, one of the more commendable recommendations is for greater sliding scale penalties being available for the ATO to impose on SMSF trustees, including monetary fines, mandatory education and rectification orders. Because the penalties would be better aligned with the level of the breach, this would more likely succeed in changing trustee behaviour. Under the current regime, the upper end of the penalty scale is rarely imposed because of extreme implications for trustees and their retirement savings.
Another example is the audit function. Clearly, trustees are being reported to the ATO where they breach the IHA rules (16% of reported contraventions). While I don’t agree with the specific recommendations on SMSF auditors in the report (in fact, I strongly disagree with them), I do agree with the sentiment that auditor competencies and independence is important and that more can be done to enhance the audit service offering. To this end, an improved audit sector will see that trustees breaching IHA rules continue to be reported to the ATO.
Banning IHA was not the right solution for the potential or actual abuse of these rules – methods to modify trustee behaviours are.
The review panel made a recommendation that SMSFs should no longer be able to invest in IHA. The main reason they give is that these investments “provide an avenue for potential abuse”.
The ATO has indicated that generally where trustees are breaching IHA rules, they are REALLY getting it wrong; that is, they are investing hefty portions of the fund’s assets in IHA, far in excess of the 5% allowed.
The panel does not appear to consider the fact that prohibiting IHA may not actually change trustee behaviour. If trustees are already breaching the existing rule to limit IHA to 5% of the fund’s assets, why would a new rule prohibiting these investments change that behaviour? In my view, some of the other recommendations may provide a better solution.
For example, one of the more commendable recommendations is for greater sliding scale penalties being available for the ATO to impose on SMSF trustees, including monetary fines, mandatory education and rectification orders. Because the penalties would be better aligned with the level of the breach, this would more likely succeed in changing trustee behaviour. Under the current regime, the upper end of the penalty scale is rarely imposed because of extreme implications for trustees and their retirement savings.
Another example is the audit function. Clearly, trustees are being reported to the ATO where they breach the IHA rules (16% of reported contraventions). While I don’t agree with the specific recommendations on SMSF auditors in the report (in fact, I strongly disagree with them), I do agree with the sentiment that auditor competencies and independence is important and that more can be done to enhance the audit service offering. To this end, an improved audit sector will see that trustees breaching IHA rules continue to be reported to the ATO.
Banning IHA was not the right solution for the potential or actual abuse of these rules – methods to modify trustee behaviours are.
Friday, July 23, 2010
Auditor competencies and independence
The sentiment coming out of the Cooper review around SMSF auditors is right – it is important to ensure that all professionals working in this sector are appropriately skilled and abide by independence principles. Can more be done to support this objective? Absolutely. Should ASIC be brought in as the regulator and standard-setter? No way.
There is a robust system in place already covering the quality of SMSF audit activity for the majority of these service providers. More than 95% of SMSF auditors, as members of the three professional accounting bodies, are obliged to adhere to competency requirements, auditing standards and professional and ethical standards.
Members are also subject to quality review and disciplinary action where appropriate. Recommendations for these measures to apply to 100% of SMSF auditors would negate the need for ASIC to issue a new set of standards.
The professional accounting bodies have always shown a willingness to constructively work with the government and regulators, including improving the integrity of the audit function for SMSFs. The introduction of mandatory auditor competency requirements in July 2008 was a significant step and we continue to see the positive impacts these are having on the industry.
There were many practical measures presented to the Cooper review panel for further improvements to the audit function; direct reporting by auditors to the ATO, enhancement of existing ATO online software and a register of auditors being provided by the ATO.
It is unfortunate that these were largely ignored in favour of recommendations for sweeping changes to be determined by another regulator to this sector. The result will be more complexity and greater costs, which goes against the very objectives Jeremy Cooper was trying to achieve.
There is a robust system in place already covering the quality of SMSF audit activity for the majority of these service providers. More than 95% of SMSF auditors, as members of the three professional accounting bodies, are obliged to adhere to competency requirements, auditing standards and professional and ethical standards.
Members are also subject to quality review and disciplinary action where appropriate. Recommendations for these measures to apply to 100% of SMSF auditors would negate the need for ASIC to issue a new set of standards.
The professional accounting bodies have always shown a willingness to constructively work with the government and regulators, including improving the integrity of the audit function for SMSFs. The introduction of mandatory auditor competency requirements in July 2008 was a significant step and we continue to see the positive impacts these are having on the industry.
There were many practical measures presented to the Cooper review panel for further improvements to the audit function; direct reporting by auditors to the ATO, enhancement of existing ATO online software and a register of auditors being provided by the ATO.
It is unfortunate that these were largely ignored in favour of recommendations for sweeping changes to be determined by another regulator to this sector. The result will be more complexity and greater costs, which goes against the very objectives Jeremy Cooper was trying to achieve.
Wednesday, July 14, 2010
Cooper: a super review?
The timing of my first blog couldn’t have been better. With the release of the Cooper report on Australia’s superannuation system last week, I have been canvassing members’ opinions on the recommendations. What did you think of the Cooper report?
Overall, I think there are some great ideas in there. MySuper and Superstream offer up some fantastic ideas for improving the super system for all Australians. The use of tax file numbers as an identifier to ensure people are correctly matched with their super savings – and stay that way – is a ‘no brainer’. Making super funds more comparable and transparent, and trustees more accountable, will go a long way to restoring confidence in our super system.
It’s a sad reality that MySuper was conceived because the majority of people – 80% – are disengaged with their super. But, in order to foster re-engagement, MySuper will need to be supported by other measures designed to educate Australians and grow their confidence in their retirement savings. Engagement should be a top priority for the government and hopefully that will be addressed in their response to the report.
My biggest concern with the Cooper report is that some of the recommendations – for example to increase regulation of SMSF auditors – reflect a misunderstanding of current systems and a failure to consider more practical measures that would achieve desired outcomes.
Other recommendations appear to have been made on assertions without supporting analysis, such as the proposal for ASIC to regulate auditor competency requirements.
The challenge for the government as it pursues a simpler, more efficient super system will be to weigh the benefits of increased regulation against the risk of strangling certain sectors of the industry.
I’m interested in your views. There will no doubt be much more discussion on these and other super issues as the government prepares its response to the Cooper review in this, an election year.
Overall, I think there are some great ideas in there. MySuper and Superstream offer up some fantastic ideas for improving the super system for all Australians. The use of tax file numbers as an identifier to ensure people are correctly matched with their super savings – and stay that way – is a ‘no brainer’. Making super funds more comparable and transparent, and trustees more accountable, will go a long way to restoring confidence in our super system.
It’s a sad reality that MySuper was conceived because the majority of people – 80% – are disengaged with their super. But, in order to foster re-engagement, MySuper will need to be supported by other measures designed to educate Australians and grow their confidence in their retirement savings. Engagement should be a top priority for the government and hopefully that will be addressed in their response to the report.
My biggest concern with the Cooper report is that some of the recommendations – for example to increase regulation of SMSF auditors – reflect a misunderstanding of current systems and a failure to consider more practical measures that would achieve desired outcomes.
Other recommendations appear to have been made on assertions without supporting analysis, such as the proposal for ASIC to regulate auditor competency requirements.
The challenge for the government as it pursues a simpler, more efficient super system will be to weigh the benefits of increased regulation against the risk of strangling certain sectors of the industry.
I’m interested in your views. There will no doubt be much more discussion on these and other super issues as the government prepares its response to the Cooper review in this, an election year.
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