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I am auditing an SMSF of an accountant.
The accountant prepared his own SMSF's financials, tax return and general admin and charged $8,000 (from his accounting firm that he owns) for one financial year. It is a small fund with shares and cash. Total balance is around $20,000 at 30 June 2023.
I've never seen an SMSF charged $8,000 for one year; certainly not for such a simple fund.
My question is, what is the reference point to determine that fees are not arm's length? Is this a matter of professional judgement? And am I supposed to determine what the fund should have been charged?
Not sure how to best proceed other than qualifying S1.09 and lodging an ACR.
Any guidance will be much appreciated, thank you.
When I recently had my personal fund audited, I provided the auditor with my detailed timesheet (WIP report) as well as the tax invoice for accounting/taxation fees charged by my firm so that they could see that the invoice agrees to the timesheet. Hourly rate was charged at the same rate as we charge other clients. We don't work on a set fee as such, it depends on how much time is involved. So I would be asking for a detailed timesheet or WIP report that shows what was done, the times and dates and the charge out rate.
Most accountants would want to charge the lowest possible fee for their own and family member Funds .Every year I receive a flyer from one of those firms that offer the all- inclusive package around $1000 and maybe you could use that as a reasonable guide in the circumstances .
Hi Jason
Im my view An ACR should be lodged. the fee paid to the member trustee seems to be excessive in this instance. It begs the question as to the treatment in the following year depending on the transactions and activity occurring
I often look to SISA S.35AE, which requires the trustee to retain adequate audit evidence. I would therefore ask the trustee for evidence, maybe basing my query on the logic that a standard, yet high, accounting fee may be around say $400 per hour. That would imply the accountant took some 20 hours to do the work. I would seek evidence as to how the fee was calculated. I agree the sole purpose test is relevant. Further, is the accountant operating as a sole trader or through a company structure? Look into SISA s.65 re providing a financial benefit to a member.
Hi Jason
Thanks. My first thought was of the NALE rules but they are not of relevance as the expenses are not lower than expected.
My view is that if higher than expected accounting fees have been paid is that it is not a section 109 of SIS breach.
Per the audit report section 109 requires that:
"All investment transactions must be made and maintained at arms-length – that is,
purchase, sale price and income from an asset reflects a true market value/rate of return".
That is section 109 is relevant to investment transactions and not to accounting fees.
The section of SIS that is relevant in my view is the sole purpose test in section 62 of SIS. Per the audit report section 62 of SIS requires that:
"The fund must be maintained for the sole purpose of providing benefits to any or all of the
following:
fund members upon their retirement
fund members upon reaching a prescribed age
the dependants of a fund member in the case of the member’s death before retirement".
My concern is that the sole purpose test has not been complied with by paying accounting fees to the trustees own accounting firm that are in excess of a market price.
You should write to the trustee and question the level of fees paid for accounting fees and note your concern that they appear to high. You should note your concern that the level of fees appears to be a breach of the sole purpose test at section 62 of SIS. The action you then take will be dependant on the response you get from the trustee.
Thanks
The Auditors Institute