retirement

Quality controls flagged for auditors as regulator clamps down

Quality controls flagged for auditors as regulator clamps down

SMSF auditors should consider new quality controls in 2019, given the regulator’s ongoing focus and recent court battles holding auditors liable for investment losses. – Accountantsdaily, SMSF Miranda Brownlee 17 January 2019

Speaking in a webinar, DBA Lawyers special counsel Bryce Figot said that recent court cases, such as Cam & Bear Pty Ltd v McGoldrick and Ryan Wealth Holdings Pty Ltd v Baumgartner, have prompted SMSF audit firms to consider how to bolster their internal quality controls and protect their business from litigation risk.

Asking the right questions

One of the key questions that SMSF auditors should be asking when they take on clients is whether there are any loans in the SMSF, and whether there are any investments in entities associated with the accountant or financial adviser who looks after the member, Mr Figot said.

The presence of loans or these types of assets can be an indicator that there are higher risks for that particular SMSF.

If there are indicators that point to high investments, then the SMSF auditor may want to contact the trustee or directors of the SMSF and alert them to the risks of the investment and flag that it may not be fully recoverable, Mr Figot explained.

The auditor should keep following up with the trustees or directors of the SMSF, he said, until they receive confirmation from all the trustees if there are individual trustees, or at least two directors where it is a corporate trustee.

The engagement letter

Best practice is to ensure that the client for whom the audit is being conducted signs the audit engagement letter, Mr Figot said.

“It doesn’t always happen that way, however. In the Ryan Wealth Holdings v Baumgartner case, the engagement letter hadn’t been signed by the trustee,” he noted.

“The letter of engagement had a formal closing of ‘Yours Faithfully, Baumgartner Partners’ and provided a space for signature above the typed words ‘David Baumgartner’ and the letter was signed by Christopher Moylan, a financial adviser and accountant to the plaintiff.”

Still an agreement
It was still considered to be an agreement that was entered into, though, with the auditor retained to perform duties under the audit contract, he explained.

In order to address situations where the letter is unsigned, he recommended that audit firms address this by having a clause in the letter that states ‘you may accept this offer by continuing to give us instructions in this matter’.

“I would say you are the client, attached is the terms governing our engagement, if you want to bill someone else, get them to sign it and return it, but until they do it, you are client,” Mr Figot explained.

“Best practice is, of course, to get it signed, but this gives you a leg to stand on. So, I think you should have that line in your engagement letter.”

Mr Figot acknowledged that while there is a lot of case law that suggests a clause like this would be adequate in the context of a lawyer providing services, there isn’t really any case law which sheds light on whether it would stand up in court for auditors.

Scope
SMSF auditors should also be aware that accountants in their engagement letter will often make it clear that the scope of their retainer is merely to act as a supplier of information.

This means that the auditor may be found liable for the accuracy of financial statements.

“This is essentially how the accountant in Cam & Bear got off scot-free, whereas the auditor was found to be 90 per cent liable,” he cautioned.

Contact Trustees
The auditor should also make it clear that they may contact the trustees and directors directly and any additional fees or hourly rates that may apply if they do contact the trustees or directors and the correspondence exceeds a certain time limit.

One of the other items that should be explained, he said, is that if the auditor decides to engage another professional such as a lawyer or an actuary, whether they will provide that advice to the client or keep that advice confidential.

“You may want to have that eventuality covered off in your engagement letter,” he said.

Auditors may also want to make it clear that if the client decides to terminate their engagement, that the auditor may still feel obligated to lodge an audit contravention report and charge for their time.

By |January 29th, 2019|Auditor, retirement, Self Managed Super Fund News|Comments Off on Quality controls flagged for auditors as regulator clamps down

Three-year SMSF audits: how auditors will be affected

Three-year SMSF audits: how auditors will be affected – By Alexandra Cain, – 26 Jun 2018, INTHEBLACK magazine – 26 Jun 2018 https://www.intheblack.com/articles/2018/06/26/three-year-smsf-audits

Trustees will still have every year audited, but this would be completed once every three years.

Experts says cutting audits of self-managed super funds (SMSFs) to once every three years instead of annually is unlikely to cut either costs or red tape and could have serious consequences for the SMSF audit sector.

The 2018 Federal Budget proposed allowing SMSFs to be audited every three years, rather than annually as currently required. It is not a one-year-in-every-three proposal, rather trustees would still have every year audited, but this would be completed once every three years.

“Trustees still have to verify the opening balance and reconcile and verify audit evidence over the three-year period, which may end up costing more. Any auditor will tell you it can be difficult getting clients to submit their material annually. This will be even tougher if they only have to do it every three years,” says Paul Drum, head of policy at CPA Australia.

Drum says that if trustees have made mistakes or inadvertently contravened regulations, the problem will only compound over three years. It is likely it will take more time and money to fix than if the issue had been picked up after a year.

Costs to rise for fewer SMSF audits?

There will be savings for some funds, but for many there won’t be any cost reduction at all, and for some an increase in costs is likely, says Richard Smith, managing director, ASF Audits. Smith says three-year audits may work for very simple funds, for instance those that only hold cash or managed funds.

“But even with simple funds, trustees can easily make errors with contributions and pensions,” he says.

Tenuous benefits aside, Drum argues moving to a three-year audit could threaten the integrity of the SMSF ecosystem.

“There will be an element who will take the opportunity to game the system. If you don’t regularly police it, you run the risk people will find loopholes. Trustees are also less likely to implement risky strategies in the existing annual audit system, in the knowledge the fund is regularly monitored.

“The extra checks auditors perform, especially around record-keeping for property investments and limited recourse borrowing arrangements, help support the regulator’s role,” he says.

Audit as checks for good administration

Drum says that rather than view the audit as an impost, a better approach is to see it as a useful tool to help ensure the smooth running of the fund.

“The audit gives trustees an invaluable check they are administering the fund appropriately. SMSFs are complex, so instead of looking at the annual audit as a burden they should be looking at it as a tool that supports their role.”

There are many details to be worked out should three-year audits be introduced, such as which SMSFs would be allowed to have their audits completed once every three years.

The Federal Government’s initial indication is that only funds with a good compliance and lodgement track record would be eligible, but no detail has been released about what constitutes a fund with a good record.

Serious consequences for SMSF auditors

If the proposal goes ahead it is likely to have serious consequences for the SMSF audit sector.

Smith says managing fluctuating workflows will be a concern, particularly if a large number of funds will be eligible to be audited in the same year, while a much smaller number will be audited in the other two years.

“That is going to create serious resourcing issues, which may increase costs for us and for our SMSF clients. One reason is because we may have to employ more casual staff, which comes at a higher cost compared to full-time staff.”

ASF has never outsourced any of its services, “but I am sure many firms are starting to think outsourcing is suddenly an option,” Smith says.

Who will decide audit timing?

A potential problem may be keeping auditors’ skills up-to-date and relevant in a three-year environment. Another issue is which party will drive the timing of the audit – the trustee, the auditor or the Australian Taxation Office?

CPA Australia is in discussions with Treasury about how three-year audits would work in practice.

“If the government can demonstrate this measure will meet its objectives, and it is able to be implemented, we would support it. But at the moment we have a lot of questions about how to make this work,” Drum says.

A Treasury spokesman confirms the Federal Government has started consultations with stakeholders on the proposal.

“Consultation to date has been constructive. The government will continue to progress consultation with industry and ensure stakeholder views are taken on board in the design of the measure,” he said.

Meanwhile, the SMSF audit industry is awaiting details of the proposal that has many businesses in the sector seriously concerned about how this will play out.

Says Smith, “When more details are released we will be able to make a better assessment of any potential savings or costs. Until then, we can’t work out what the real impact will be.”

 

By |August 21st, 2018|aged care, budget, retirement, Self Managed Super Fund News|Comments Off on Three-year SMSF audits: how auditors will be affected

Pension Loan Scheme

The pension loans scheme, From Tax & Super Australia Newsroom – https://taxandsupernewsroom.com.au/pension-loans-scheme/

To help pensioners who are asset rich but income poor, the government launched its own version of a financial product that has been commercially available for some time, the reverse mortgage.

A reverse mortgage is a type of home loan that allows you to borrow money using the equity in your home as security. The loan can be taken as a lump sum, a regular income stream, a line of credit or a combination of these options.

Interest is charged like any other loan, except you don't have to make repayments while you live in your home – the interest compounds over time and is added to your loan balance. You remain the owner of your house and can stay in it for as long as you want.

You must repay the loan in full (including interest and fees) when you sell your home or die or, in most cases, if you move into aged care.

While no income is required to qualify, credit providers are required by law to lend you money responsibly, so not everyone will be able to obtain this type of loan.

The government’s answer is its pension loans scheme (PLS), whereby a pensioner can apply for a non-taxable loan using some form of real property as security. The PLS does not provide a lump sum, but a regular fortnightly payment.

The scheme is administered by the Department of Human Services (DHS).

At present the scheme is only open to those on a full pension, but the 2018 Federal Budget announced the government intends to open the PLS to all pension-age retirees (not just those who qualify for the Age Pension). A date has not been set for this yet.

Also (from 1 July 2019) the maximum allowable income stream (combined Age Pension and PLS) will increase to be 50% higher than the full pension, including supplements.

A full age pensioner may be able to apply if:

  • they or their partner are of Age Pension age
  • they own real estate in Australia that can be used as security for the loan (home or investment)
  • they or their partner receive a rate of payment that is less than the maximum pension amount or nothing (due to either the income or assets test, but not both)
  • they meet Age Pension residence rules.

There are costs associated with the scheme, which DHS will determine and send to the person seeking the loan. The current rate of interest is 5.25%, which DHS adds to the outstanding loan balance each fortnight until the loan is repaid.

The loan recipient can repay the PLS loan in part or in full at any time. If the loan recipient wants to sell a property they need to inform DHS, and they can either transfer the loan to another property including a new home or they can repay the loan on the date of settlement.

If there is an outstanding amount upon the loan recipient’s death, the estate or in some cases the surviving partner’s estate can make repayments.

The total loan available depends on the:

  • equity in the property offered as security
  • equity kept in the property, and
  • the age of the recipient or their partner, whoever is younger.

Applicants can get a loan up to the maximum rate of income support payment they qualify for. Loan recipients may also use real estate owned by a private company or trust as security for the loan, if they are a controller of that company or trust. If there is more than one property, they can choose which to use as security for the loan.

DHS will register a charge with the Land Titles Office on the title deed of the property used as security, with recipients paying any costs associated with this charge. A licensed valuer will value the property; however this is done at no cost to the loan recipient.

Any person seeking a PLS should contact the DHS first to ensure they are eligible and to confirm the amount they can seek.

By |August 20th, 2018|aged care, budget, retirement, Self Managed Super Fund News|Comments Off on Pension Loan Scheme

SMSFs to be required to have Retirement Income Strategy

SMSFs to be required to have Retirement Income Strategy from www.solepurposetest.com/news MAY 21, 2018 BY LUKE SMITH

SMSFs would be required to develop a Retirement Income Strategy under changes to superannuation being developed by the Government.

The Government has released a position paper on the Retirement Income Covenant, which would require super funds – including SMSFs – to develop a Retirement Income Strategy for members.

“For too long superannuation has been focused only on accumulating savings. A retirement income framework is a pivotal part of the Government’s reform agenda for superannuation – an agenda squarely focused on protecting and improving outcomes for superannuation members,” said Minister for Revenue and Financial Services Kelly O’Dwyer.

“To fulfil the overarching purpose of superannuation, it is essential that trustees develop a retirement income strategy and consider the retirement income needs of their members.” 

This follows from an announcement in the 2018 Budget that the Government intends to amend the SIS Act to “introduce a retirement covenant that will require superannuation trustees to formulate a retirement income strategy for superannuation fund members”.

The Retirement Income Covenant is part of the Comprehensive Income Product for Retirement (CIPR), which was a recommendation of the Financial System Inquiry (FSI) to require super funds to pre-select a retirement income option for members. The Government has been slowly progressing CIPR since it was recommended by the FSI in 2014.

According to the position paper the only part of the Retirement Income Covenant that would apply to SMSFs is the requirement for a Retirement Income Strategy.

In terms of the broader Retirement Income Framework, the Government plans to prioritise progress of the Retirement Income Covenant, followed by simplified and standardised disclosures for retirement products, then retirement income projections and finally the regulatory framework.

The superannuation industry has criticised CIPR as “neither necessary nor sufficient”, as currently designed, to meet its goals.

 

By |May 22nd, 2018|budget, retirement, Self Managed Super Fund News, Uncategorized|Comments Off on SMSFs to be required to have Retirement Income Strategy

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