SMSF auditor registration
The second key government announcement the accounting profession has been eagerly awaiting is in relation to the registration of SMSF auditors. Originally, the registration system was to start from 1 July 2012. However, the start date has been put off until 31 January 2013, with a transitional period until at least 1 July 2013.
The broad framework for SMSF auditor registration will require auditors seeking to be registered to meet the following:
- have a tertiary qualification in accounting (tertiary includes Advanced Diploma)
- have some form of audit training (subject to ongoing discussions as to final requirement)
- meet the fit and proper person test (not a bankrupt, not subject to serious criminal/fraud conviction, not been barred by a regulator etc)
- have appropriate professional indemnity insurance
- meet the competency/experience requirement.
The competency/experience requirement will differ according to how many audits you currently undertake. Auditors who sign off on 20 or more SMSF audits per year will be able to register from 31 January 2013 as long as they meet the requirements outlined above. Auditors who sign off on fewer than 20 audits per year have to meet all of the above but also have to pass a competency test.
Prospective new auditors who wish to be registered from 1 July 2013 who have not previously signed off on an SMSF will have to not merely pass the competency test but also prove to ASIC that they have 300 hours of relevant experience in the past three years.
Demonstrating skill levels
The Government has determined that those who do 20 or more audits will have already demonstrated that they have sufficient skills and experience in SMSF audit such that they do not require further testing. However, the Government and the regulators are concerned that those who do a small number of audits may not have sufficient knowledge and skill to undertake an SMSF audit of sufficient quality.
The majority of SMSF auditors who have been disqualified or had action taken against them by the ATO have been auditors who do a small number of audits. Rather than banning such persons from being able to be registered, the Government has decided that those undertaking fewer than 20 audits per year need to prove their skills by sitting and passing a competency exam.
The IPA supports the competency requirement. Accountants completing only a small number of audits often do not have a deeply ingrained understanding of the audit process. Also, many do not keep abreast of developments in the law. ATO data shows that the majority of poor quality audits come from this group, so it makes sense to require these individuals to prove their competency before they can be fully registered.
The IPA will be preparing cost-effective training for members who do fewer than 20 audits and wish to undertake the competency test to assist them in upgrading their skills.
Some concerns remain
We have two main concerns with the SMSF audit proposals. The first is the requirement for existing auditors to prove they have done specific training in audit. If a person has been undertaking audits for many years, it is insulting to suggest they should go back to school to learn the basics. They have those skills.
Furthermore, we would argue that the competency test will show whether or not they have those skills regardless. If an existing SMSF auditor fails the competency test, we could understand the need to then require additional study but this should not be a primary requisite.
Auditors were not required to have undertaken such study in the past, either at the time they undertook their training or at the time they became an SMSF auditor. It is retrospective to now require that they should have undertaken study. It is a reasonable requirement for new SMSF auditors but we do not believe it should apply to existing ones.
We are also concerned that existing auditors are unlikely to undertake academic study. They will be keeping their skills up-to-date through CPE. The IPA therefore will be arguing that existing auditors should not have to prove prior audit study.
The second major concern the IPA has with the proposal is in relation to new SMSF auditors after the start date. While we believe there is the need for prior experience before a person can be registered, we are yet to be convinced that a 300-hours test is appropriate.
In particular, we are concerned that a 300-hours test will make it hard for those working in small practices, particularly in regional or rural areas. Three hundred hours’ experience over three years equates to roughly 20 audits per year. The ATO data shows that less than one-third of all existing practices do 20 or more audits, meaning that accountants at two-thirds of practices are likely to miss out on the opportunity to become registered in the future.
Furthermore, the hours test may not ensure sufficiently broad experience. A person who works on 10 complex SMSF audits is likely to get much better experience than someone who works on 50 simple SMSF audits.
Finally, we are concerned that the additional hours requirement will act as a serious barrier to entry, creating a closed shop that will in the long run lead to an ever diminishing pool of SMSF auditors.
We therefore believe that the hours test needs to be reconsidered and alternate measures considered to ensure that a person has sufficient experience without creating an excessive barrier to new auditors.
In general support
Overall we believe that registration of SMSF auditors should help to improve the quality of SMSF audits and raise the standing of SMSF auditors. Members who do a small number of SMSF audits per year will need to make a decision about whether they will continue to offer those services to clients.
We encourage those who decide to continue to provide such services to undertake training to ensure that they are able to pass the competency test when it becomes a requirement.
The IPA will be developing appropriate training packages to assist such members. For those SMSF Auditors who decide that it is no longer worth providing such services, the IPA will seek to assist you to transition your clients with SMSF audit needs to other IPA members. The IPA may even look at assisting members who are just under the 20 SMSF threshold to gain new clients from members who no longer wish to provide those services, hopefully pulling them above the threshold.
The interesting outcome from the new registration process will be whether clients are willing to pay the cost of an audit. Many members fail to charge clients the full audit cost in the hope this will keep them happy. Unfortunately, this has merely led to an under- appreciation of the true cost and time of undertaking an audit.
With the new costs associated with registration process and the higher scrutiny that will be imposed on SMSF auditors, auditors will need to raise with clients the expectations of the cost of an audit in the future.
In summary
Minister Shorten’s response to the accountants’ exemption is a very welcome development for the profession. It opens a number of opportunities for members willing to take advantage of the new licence. It is also a reflection of the years of lobbying by the professional bodies on behalf of members to change the Government’s mind on this issue. The new registration of SMSF auditors should help to improve the quality of audits and the standing of SMSF auditors. However, it will be important that ASIC appreciates the difference between SMSF auditors and Registered Company Auditors for the new registration system to be effective. We will continue to advocate on behalf of members to ensure appropriate outcomes that raise the standards of the profession while protecting the ability of members to earn a living.
