SMSF tax whinge

[RogueTrader273]

Just wondering if anyone else with an SMSF has to provide bank statements for ALL months to their accountant at tax time? (Mine insists he needs them for the auditors.)
My bank wants to charge me $84 ($7 x 12 months) for them, which seems outrageous for a few pieces of paper. Any thoughts?

 

[pedalofogus]

Auditor doesn't need all bank statements, that is rubbish. Yes the auditor needs to satisfy himself that the SMSF hasn't breached any of the SIS rules, but he can do that in other ways. Really all he needs is confirmation direct from the bank of the balance at 30 June, and he needs to be able to determine all of the transactions on the account during the year. This can be done with deposit slips and cheque butts, or internet banking printouts, or a written summary of all the transactions.

At the end of the day, if the bank reconciliation agrees to the bank confirmation from the bank, and the source documentation is accounted for (dividend statements, share purchase and sale contracts, invoices for expenses, etc), then the auditor has enough info to do their audit.

 

[Julia]

Auditor doesn't need all bank statements, that is rubbish. Yes the auditor needs to satisfy himself that the SMSF hasn't breached any of the SIS rules, but he can do that in other ways. Really all he needs is confirmation direct from the bank of the balance at 30 June, and he needs to be able to determine all of the transactions on the account during the year. This can be done with deposit slips and cheque butts, or internet banking printouts, or a written summary of all the transactions.

At the end of the day, if the bank reconciliation agrees to the bank confirmation from the bank, and the source documentation is accounted for (dividend statements, share purchase and sale contracts, invoices for expenses, etc), then the auditor has enough info to do their audit.

Well, my accountant insists on all the bank statements. Says the auditor requires these.


To the OP: don't you receive bank statements regularly throughout the year? If not, why not? As mine arrive, I simply electronically forward them to my accountant, keeping a copy in an e-file for my own records. Also receive paper copies for which I pay nothing.
Sounds as though you need to review your arrangements with your bank.

 

[RogueTrader273]

Thanks pedalofogus! Actually there weren't any transactions during that period, only interest received. HSBC won't however give me any records prior to three months ago unless I pay their rate of $7 per month, which I guess would be the only way I can prove there were no transactions - do you think those statements would be necessary?

Julia - I only set this up before the prior year, and neither my accountant or bank advised me to keep monthly statements until now when I'm lodging the first return; I've now requested monthly statements.

 

[pedalofogus]

If there werent any transactions except for interest, then you definately wont need statements. Reason: auditor has to receive 3rd party confirmation from the bank, and any auditor worth a pinch of s... will do a bank confirmation whcih includes a confirmatin of interest for the year. So if they know opening balance is say 100,000, and the confirmation says interest of 7,000 and closing balance of 107,000, well then the auditor knows the statement reconciles.

But I must disclaim, not all auditors are the same. I am an accountant working in Public Practice, and our firm has about 150 SMSF clients. My clients make up about 40 of those SMSF's. Some of those are in a very similar situation to you RT, and generally we just work with our auditor to give them any info we can to satisfy them that everything is safely reconciled. At the end of the day, Materiality is the guiding force for auditors, so if they can be comfortable that the SMSF is materially correct, they will accept it.

 

[RogueTrader273]

Thanks for that! So if the auditor can just confirm with the bank, then I'd surely be wasting $84 requesting individual monthly statements then?

 

[pedalofogus]

Yeah exactly. All the auditor wants to do is confirm the account balance etc. How you get that result is irrelevant

 

[Crom]

If I may be permitted to digress, my SMSF tax whinge is the concessional caps on contributions.

There is little to recommend turning 50, but one plus was to be able to contribute 50 grand into my SMSF. However I will only get one opportunity to do this as this pathetic ALP Gov't changed the rules so that as at 1 July, I can only put in 25 grand (unless my SMSF is less than 500 grand, which due to hard work it is not).

Bird brain Swan and Juliar Gillard say they need the tax revenue, rather than my and others getting the tax deduction. (Note the ALP also brought in the 15 % tax on super fund income as well).

And why do they want the increased tax revenue? So they can satisfy their lust for reckless and wasteful spending!

The 500,000 figure is so arbitrary, and certainly does not imply you are wealthy. Nor does it mean you have enough to retire, so building your super should still very much matter.

I will not get a pension but should be allowed to provide for my future. Surely the 50,000 cap in itself prevents wealthier peoples, whom the ALP and Greens despise, from putting higher amounts into super.

The ALP will get away with it as they are only concerned with governing for the demographic which votes for them, being traditionally more lower income. We have seen this through their stimulus handouts 1 and two, which I did not recieve. AND, don't be fooled, we see it also through their proposed carbon tax which is a wealth transfer again to lower incomes.

As my accountant says, we all need to pay our fair share of tax and I agree with this. However ALP policy is a disincentive one.

Anyway, I will hop of my soap box and get back to the share mkt.

 

[luke256]

Thanks for that! So if the auditor can just confirm with the bank, then I'd surely be wasting $84 requesting individual monthly statements then?

As far as know a bank audit certificate/confirmation will cost about $50 and time for your accountant to prepare the request (your accountant bills by the hour). Just give them the statements and keep better records for the next year.

If there werent any transactions except for interest, then you definately wont need statements. Reason: auditor has to receive 3rd party confirmation from the bank, and any auditor worth a pinch of s... will do a bank confirmation whcih includes a confirmatin of interest for the year. So if they know opening balance is say 100,000, and the confirmation says interest of 7,000 and closing balance of 107,000, well then the auditor knows the statement reconciles.

Most accountants/auditors request the full years bank statements, its standard practice. A good example showing why they do this:
Opening bal. $100,000
Interest $7000
Withdraw to buy car (temp loan): $10,000
Pay back loan $10,000
Closing balance $107,000 .......Bank confirmation won't alert the auditor to the misuse of funds to buy the car. Isn't it the auditor's duty to check for breaches of the SIS Act?

The SMSF tax return that must be submitted to ATO asks "Did the SMSF lend money or provide financial assistance to a member or relative of a member of the fund?" This is one reason they ask for bank statments. Someone could decide to not provide the purchase invoice of the car and the subsequent deposit slip repay the loan. A bank statement can overcome this.

 

[awg]

Thanks for that! So if the auditor can just confirm with the bank, then I'd surely be wasting $84 requesting individual monthly statements then?

Yeah exactly. All the auditor wants to do is confirm the account balance etc. How you get that result is irrelevant

Hi,

I just recieved a letter from my SMSF auditor, wanting 2 missing bank statements, and to clarify 2 entries on my settling account.

As there was a complication with the entries, I gave them a call.

relaxed and helpful, but he did say that they do require ALL bank statements.

There was over 500 entries in my settling account and I have to account for them all, which is time consuming, the irregular entries, I have to clarify by cover letter, lucky I remembered vaguely there was a bank return of funds, which is unclear from the bank statements.


thx ped, for your input.

I always figure it will be WAY cheaper for me to sort things out, than get my accountant/auditor to do it:

Having an SMSF has made me more disciplined in my record keeping for sure.
I enable electronic bank statements, so I can download them.
Dealing with banks is my pet SMSF hate.

Have the audit documentary requirements been tightened in the last 2 years, in respect of auditor accountability?

(I am with a large provider that charges a low fixed fee for audit)

 

[Julia]

As far as know a bank audit certificate/confirmation will cost about $50 and time for your accountant to prepare the request (your accountant bills by the hour). Just give them the statements and keep better records for the next year.

Most accountants/auditors request the full years bank statements, its standard practice. A good example showing why they do this:
Opening bal. $100,000
Interest $7000
Withdraw to buy car (temp loan): $10,000
Pay back loan $10,000
Closing balance $107,000 .......Bank confirmation won't alert the auditor to the misuse of funds to buy the car. Isn't it the auditor's duty to check for breaches of the SIS Act?

The SMSF tax return that must be submitted to ATO asks "Did the SMSF lend money or provide financial assistance to a member or relative of a member of the fund?" This is one reason they ask for bank statments. Someone could decide to not provide the purchase invoice of the car and the subsequent deposit slip repay the loan. A bank statement can overcome this.

Good example, Luke. I'd be less happy, actually, if I were not required to keep detailed records and provide all bank statements.

If I may be permitted to digress, my SMSF tax whinge is the concessional caps on contributions.

Crom, I hear you absolutely. Yet we are supposed to be feeling encouraged to be fully self funded.

 

[pedalofogus]

As far as know a bank audit certificate/confirmation will cost about $50 and time for your accountant to prepare the request (your accountant bills by the hour). Just give them the statements and keep better records for the next year.

Firstly, only some banks charge $50 for the audit certificate, and I'm not going to name names on here, but generally you find that it is the banks that charge for everything. Of my SMSF clients, only about 3 or 4 of them pay a fee for the audit certificate.

Secondly, an auditor needs a bank audit certificate to complete their SMSF audit, irrespective of whether you provide your statements. Reason: one of the key requirements of the audit is that they obtain 3rd party confirmation that the assets shown in the SMSF balance sheet are actually owned by the fund. For shares, they can do this by logging into your Computershare or Link accounts, or by getting a confirmation of holdings from your broker. For real property they do a title search. And for bank accounts they do a bank audit certificate. They cannot use the bank statements that you give them as 3rd party confirmation, as they have received them from YOU. Very rarely will they accept the bank statement, the only reasons they would accept it would be if the bank account balance was immaterial, or if you have some sort of special relationship with the auditor that enables him to trust you. but they are gambling with their SMSF auditor registration if they do it.

In relation to the comment re breaches of SISA, as i said previously it is all about the auditor managing his risks. While he would like to view every single document in relation to the fund, generally that is not possible or not cost effective. Using the example of $10k taken out to pay for car (and then repaid), i would argue this is not a major breach of the SISA because the loan was only temporary and was repaid as soon as the breach was realised. Any auditor that would argue your SMSF is non complying because of that deserves a swift slap to the back of the head.

So going back to the original proposition of this thread, if the auditor is requiring you to pay that much money to obtain those bank statements when chances are there is nothing in it, then you need to find yourself a new auditor.

 

[luke256]

Firstly, only some banks charge $50 for the audit certificate, and I'm not going to name names on here, but generally you find that it is the banks that charge for everything. Of my SMSF clients, only about 3 or 4 of them pay a fee for the audit certificate.

- If you work in public practice you charge for your time. Time to fill out the bank certificate request form, time to see the client so they sign the form. So it is not just the bank charging in this regard.

Secondly, an auditor needs a bank audit certificate to complete their SMSF audit, irrespective of whether you provide your statements. Reason: one of the key requirements of the audit is that they obtain 3rd party confirmation that the assets shown in the SMSF balance sheet are actually owned by the fund.

- I agree an auditor needs a bank certifcate to verfy 30 June bank balance. But my point is if they are 'worth their salt' they will want to look over the bank statement as well to see all the transactions.

Using the example of $10k taken out to pay for car (and then repaid), i would argue this is not a major breach of the SISA because the loan was only temporary and was repaid as soon as the breach was realised. Any auditor that would argue your SMSF is non complying because of that deserves a swift slap to the back of the head.

- In the real world if someone borrows money from the fund the misuse of funds will be discovered by the auditor after 30 June 2010. In this example funds are borrowed and repaid before 30 June 2010 to hide the intentional misuse of restricted preserved funds. If a simple bank statement would alert the auditor to this, i think it is reasonable to expect the auditor to ask for bank statements. In the real world most firms will just warn the client but you need to know about the transaction before you can correct the clients wrong doings.

So going back to the original proposition of this thread, if the auditor is requiring you to pay that much money to obtain those bank statements when chances are there is nothing in it, then you need to find yourself a new auditor.

- If the auditor used by RogueTrader273 is happy to accept bank statements soley why would you leave just for that? Next year if RogueTrader273 keeps the statements just give them to the accountant/auditor and have no bank confirmation fee to pay.

From memory HSBC the bank in question charge for their bank audit certifcates.

 

[pedalofogus]

- If you work in public practice you charge for your time. Time to fill out the bank certificate request form, time to see the client so they sign the form. So it is not just the bank charging in this regard.


- I agree an auditor needs a bank certifcate to verfy 30 June bank balance. But my point is if they are 'worth their salt' they will want to look over the bank statement as well to see all the transactions.


- In the real world if someone borrows money from the fund the misuse of funds will be discovered by the auditor after 30 June 2010. In this example funds are borrowed and repaid before 30 June 2010 to hide the intentional misuse of restricted preserved funds. If a simple bank statement would alert the auditor to this, i think it is reasonable to expect the auditor to ask for bank statements. In the real world most firms will just warn the client but you need to know about the transaction before you can correct the clients wrong doings.


- If the auditor used by RogueTrader273 is happy to accept bank statements soley why would you leave just for that? Next year if RogueTrader273 keeps the statements just give them to the accountant/auditor and have no bank confirmation fee to pay.

From memory HSBC the bank in question charge for their bank audit certifcates.

I don't know why you are talking as if you wont need a bank audit certificate if you provide bank statements. You will still need end of year 3rd party confirmation of the bank balance, even if you provide the paper statements. Yes the bank might charge for it, but its a necessary part of the audit. And at my firm, our TIME COSTS for doing a bank confirmation is $7 or $8 (depending on which under-grad spends 6 minutes doing the confirmation), and we generally absorb that within the fee we would charge for the audit anyway.

A SMSF audit is similar to any other audit. So by saying the auditor will want to see every transaction, you are saying that the auditor of say BHP will want to see every transaction on BHP's bank statement for the year. The fact is that they use sampling, risk analysis, internal controls testing, etc to come up with their list of a limited number of things to test. Its the same with a SMSF audit. If the auditor doesn't think there is a high risk of the bank account being over stated or understated, and at 30 June he is happy that there are no loans to members etc, he will treat the account as a immaterial risk to his audit and will move on.

At the end of the day, SMSF accountants and auditors are the same as any other service industry. If you do the SMSF accounting yourself, and send it off to some specialised SMSF auditor in a different state, then you are going to get an unpersonalised service. However, if you deal with someone who you can see face to face, and who you have created a professional relationship with, they will work with you and the auditor that they recommend to come to a solution that is beneficial for the client and for their own professional standards.

 

[luke256]

I don't know why you are talking as if you wont need a bank audit certificate if you provide bank statements.

I suggest you read my last post properly if you are to comment on it, i said:

I agree an auditor needs a bank certifcate to verfy 30 June bank balance.

I also think it it not unreasonable for an auditor to ask for bank statements to see all transactions. Whats the big deal its only $84 for RogueTrader273 and for most costs nothing as they will already have the statements on hand.

BHP and a SMSF audit are completely different (i.e level and complexity of transactions) and it is useless trying to compare the two. I never said that the auditor of an SMSF would have to check every transaction in detail but if you can get a list of them all its useful. Maybe the auditor could just have a look at cash withdrawals or large unusual items???

 

[pedalofogus]

I did read your previous post, and you did say that a bank confirmation wasn't needed:

- If the auditor used by RogueTrader273 is happy to accept bank statements soley why would you leave just for that? Next year if RogueTrader273 keeps the statements just give them to the accountant/auditor and have no bank confirmation fee to pay.

From memory HSBC the bank in question charge for their bank audit certifcates.

But you are right, we are quabbling over less than $100 bucks, so as you say it isn't a big deal.

At the end of the day, if your auditor asks for something then you should probably give it to them (within reason) so that they do the audit and your fund maintains its complying status. But if you find yourself constantly jumping through useless hoops for the auditor, just remember you don't have to take it just because they are an auditor. Take your 200-300 bucks to someone who has the correct grasp on the concept of materiality.

 

[RogueTrader273]

Wow this thread's grown since I last looked!
My main beef is I object to paying someone $84 for something which
only costs them about 50c. Also when they set up the bank account
for the SMSF, surely they should be aware that I would be required to
produce monthly statements for the auditors at tax time, so shouldn't
I be sent them by default? (Or at least have an electronic record I
could access.) To deliberately only allow me the last three months
electronic records and charge me $7 per month before that just seems
like a blatant ripoff, and no doubt a multi-million dollar profit centre for HSBC.

 

[pixel]

I am mildly perplexed by some of the "issues" mentioned here. Hasn't your Bank heard of electronic statements? Hasn't your Auditor requested an authority to receive copies of transactions? Doesn't cost a cent.

My SMSF's main account is a Macquarie CMA, earning RBA rates for monies that are not invested in shares. As I'm actively trading, there are heaps of transactions, but their description includes details such as "Buy 10000 TOL $5.72", which matches the title of my broker's contract note, the file name of which includes "BUY 10000 TOL".
All I send my Auditor is a CD with all contract notes, one transaction file, and - for my own purposes - a Portfolio database that uses all those transactions and condenses them into Trade Results, Dividend records, and an end-of-financial-year Holding statement.

A computer program takes care of matching up bank statements and broker contract notes.

Since my in-house software also includes daily bank reconciliation - I'd feel a fool not to make sure things tally - the Audit is a piece of cake: Verification of share transactions is fully automated, and my own withdrawals go into one or the other personal bank or cheque account; such transactions are marked as either "Pension" or "Lump Sum".

There is only one "issue" that irks me: My Accountant is forced - by some stupid Red Tape Official Admin Rule no doubt - to print it all out, with details of every single transaction filling a page or more, thus wasting an entire forest when it could so easily be pushed out as a pdf on a tiny memory stick.