Anything that you wanted to know about Auditing Investments platform

Auditing an investment platform can present some challenges. Here, we tackle some of the biggest questions that you may have about this task.

There is a trend among modern investors to utilize investment platforms and the efficiencies offered. This gives out some interesting challenges to auditors and accountants. Each investment platform comes with its own set of features and reporting. You have to learn about these if you want to carry out audits with ease. Furthermore, you have to learn how to work within the confines of the platform itself and understand the tools available to you. Failure to do so could lead to a struggle to find the key information needed for the audit. Investment platforms aren’t something that you can avoid either.

The rise in popularity of managed accounts has led to more people using platforms to help manage their investments. They allow users to oversee their accounts and gain transparency. This helps to gain trust, and be consistent and believable for investors at all levels. What you may not realize is that investment platforms also offer tools to accountants and auditors.

This article refers to managed accounts and their relevance to investment platforms, what investment platforms offer for accountants and auditors, and if their data feeds are reliable or not.

What is a Managed Account?

Before getting started with anything else, the first step is to understand what Managed Accounts are. With a managed account, each investor has direct or beneficial ownership of the individual underlying investments. They then hire a professional manager to oversee the investment portfolio on their behalf. This is the key difference between managed accounts and managed funds. With a managed fund, the investor has a share of a pool of assets via issued units rather than direct or beneficial ownership of the underlying investments.

The individualized aspect of managed accounts is what has made them so popular. Using them allows the owner to tailor their investment strategy according to their own goals. They allow ease of portfolio management, which results in time savings. They also provide access to better transparency through professional management, as well as more comprehensive reporting. Often, an investment platform will be used to deliver or enable managed account services.   Investment platforms offer a good access point to managed accounts. This is because they offer a very efficient method of reporting on transactions and managing the investment.

Hence, as managed accounts gain popularity, so do investment platforms. There’s another important point to make here. You may have to audit more than one managed account when auditing the output from an investment platform. Managed accounts are only one type of investment that these platforms offer and clients can have numerous managed investments. Others include fixed interest, equities, and cash investments. Investment platforms also generally offer access to managed funds. There is an increasing trend toward using investment platforms that looks likely to continue. This means you’ll have to audit the outputs from more investment platforms more often as time goes on.

What does an Investment Platform Offer to an Auditor?

This trend toward investment platforms can seem like a scary proposition. While most auditors have worked with the outputs from platforms before, there’s an issue of complexity to consider. Managed accounts and other investment types make the auditing process more difficult. The good news is that many investment platforms offer an array of features. These features often benefit auditors and aim to make it easier for you to do your job. These features include the following:

  • Direct access to investment information for accountants and auditors:

For example, some investment platforms can offer you access to live reports. This gives you an up-to-date picture of your client’s finances and actions. These reports can often complement the end-of-year reports received and provide more detail. They cover every aspect of the transaction, in addition to that, they’re often automated. This cuts down the issues related to human errors.

  • Access to audit reports issued for the investment platform:

The issuing of these reports allows auditors to rely on the year-end data that the platform generates. The reports also offer greater transparency to auditors, clients, and advisors.

  • Access to data feeds if the platform supports them:

Many platform providers have introduced data feeds into their offerings that cover all investment types. These feeds provide greater automation of data entry and can provide greater transparency around the underlying transactions that the client undertakes.

Also, it is important to remember that each investment platform offers different features. These are only a couple of examples of what the platforms provide to accountants and auditors. Your client’s platform may not have all these features or it may have extra features that can provide you with even more help.

These differences affect your auditing approach. They call on you to learn about the specific features that a platform has to offer, but taking the time to do this usually leads to you saving a lot of time later on.

Can I Use Data Feeds?

The use of data feeds when auditing investment platforms is a contentious issue. On one hand, some platforms don’t yet have the required functionality. The use of feeds doesn’t come as standard across all platforms and the treatment of different investment types (particularly managed accounts), differs across the software consuming the feed. That does not mean you should automatically not use feeds. You just have to be aware of the source and any limitations, as you do with any feed that you use. But things have started to change. Investment platforms have started to evolve their feeds and many include tools that offer greater support to auditors and accountants who use the platform’s data.

Conclusion

Auditors must come to grips with the evolution of investment platforms. The popularity of managed accounts has led to more people using them. You need to adapt to the greater complexity of the investments that people oversee using these platforms. You also need to know about the new tools that they provide concerning accessing up-to-date data and providing online access to platform users. The key lies in understanding what these platforms have to offer. You have to take full advantage of the resources that the platforms provide. This may require some research on your part.

However, there’s a strong payoff. Accessing these tools can save you a lot of time during the auditing of accounts preparation process. Of course, using a good audit platform can speed up the auditing process further. That’s where Cloudoffis can help. Cloudoffis is an automated SMSF audit solution that allows for even greater efficiency. Arrange for a live demonstration with our team today. With Cloudoffis, you can make SMSF audits more efficient than ever before. Simply schedule your demo on the form below.

Change in audit proposal leads to domino effect for new solutions

If enacted, from July 2019, some SMSFs may qualify for the three-year audit cycle. This change would lead to a domino effect of new struggles and new solutions. Everyone in the industry is discussing this proposed change to the audit cycle. The 2018-19 Federal Budget includes the three-year SMSF audit proposal. The idea is to reward SMSFs that have kept good records and a history of compliance. Instead of getting audited annually, these SMSFs would go on a three-year auditing cycle. According to the Treasury, this would reduce the amount of red tape that SMSF trustees have to deal with. However, the changes to the auditing industry would be significant. What consequences will SMSFs and auditors have to deal with if the proposal passes? How will it alter established auditing practices?

The Proposal

Let’s look at the particulars.

1. When Does the Proposal Go Live?

This proposal goes into effect from 1 July 2019 if passed. For the moment, we don’t know the exact audit year it would apply to and whether there would be transitional arrangements.

2. Which SMSFs Would Be Eligible?

It’s not clear yet how many SMSFs would be able to switch to three-year audit cycles. The criteria are:

  • Three consecutive years of clear audit reports.
  • A history of timely SMSF Annual Return (SAR) submissions. It’s not yet decided what this means. It might be enough that the SMSF has no outstanding SARs currently. SMSFs might qualify if they haven’t had any late SARs in the past three years. It’s also possible that only SMSFs that never submitted a late SAR would be eligible.
  • Certain key events will influence the timeline of the three-year audit cycle. If such an event occurs, the SMSF will be audited every year since its last audit, and the cycle will restart. Events include the addition, removal, or death of a member. If a member commences a superannuation income stream for the first time, the SMSF will have to be audited. LRBAs and investments from a related party would also qualify as key events. The eligibility will be based on self-assessment by SMSF trustees. However, there’s a real chance of erroneous self-assessment. If the ATO determines there’s a mistake, an audit will be necessary. The ATO might also take additional action.
3. Where Can You Discuss This Proposal?

The consultation period for the proposal ended on 31st August 2018. That being said, the Treasury received substantial feedback on the proposal from those within the industry.

4. Why Was This Measure Proposed?

In theory, SMSF trustees would have lower administrative costs as a result. There is a chance that the delays in SAR submissions would go down. The main goal is to ease the compliance burden on SMSFs.

5. Will the Proposal Affect Other Legislation?

This proposed change seems to be at odds with some new regulations. The introduction of TBARs and event-based reporting has had significant benefits so far. The industry is now moving to more real-time processing. This allows for greater transparency and oversight. Some speculate that the three-year audit cycle would cause this oversight to plummet. The Treasury’s proposal is also in contrast to the main takeaways from the ASIC Report 575 SMSFs: Improving the Quality of Advice and Member Experience. Now, let’s look at the main consequences for SMSF members, accountants, and auditors.

The Effects

The industry will change in various ways if the proposal passes. None of these changes are beneficial to auditors. Most of them will have a negative impact on the SMSFs as well.

Auditing Becomes More Difficult

This proposal would make it more difficult for auditors to conduct comprehensive and accurate audits. Three-year-old data would be considerably harder to track down. Some institutions may not maintain old data. In some cases, the SMSF may have used multiple accounts or software packages during a three-year period. This can make accessing reliable data more challenging and may present hurdles when trying to access supporting documentation. Auditors will also have far more data to analyze. This means that the time necessary to complete an audit will increase.

Auditors Will Have to Change Their Workflow

Currently, auditors have a steady workflow and increasingly better access to more timely data. But the three-year audit cycle will undo these benefits. As audits become less frequent, the workflow will fluctuate a great deal.

Furthermore, the cycle will cause issues with data and document access. It may also have an impact on how knowledgeable an auditor is in regard to their client and their circumstances. Many audit firms will have to make changes in staff and workflow. The structure of the industry will change. Since the number of businesses specializing in SMSF auditing will go down, the fees are likely to increase. The increased workload will also have an effect on fees.

SMSF Trustees Will Have Less Guidance

At the moment, trustees rely on auditors for guidance as well as oversight. In many cases, non-compliance happens by accident. In the absence of yearly audits, some SMSFs may opt for regular health checks.

In other words, they would hire auditors to do a high-level review at the end of each year. This health check would be less comprehensive than the audit at the end of the three-year cycle. But could still be the best option for SMSFs that want to avoid accidental non-compliance. Note that the check-ups would be an additional cost for the trustees. Between that and the increased auditing fees, it’s not likely that SMSFs will actually save on administrative costs in the long term.

The Penalties Will Become Higher

The longer timeframe may make it considerably more difficult to rectify non-compliance issues. When problems stay undetected for a long time, SMSF trustees have to pay higher penalties.

The Eligibility Criteria Can Lead to Problems

As discussed above, SMSFs would self-determine whether they qualify for the three-year audit cycle. For now, there are no guidelines for monitoring this. The key events that reset the cycle might go unnoticed. Trustees might have to deal with extra penalties and complexity if they misjudge their eligibility.

The Timing of the Audits Is Unclear

There’s still speculation over who will handle the timing of these audits in practice – the auditor, the trustee, or the ATO? This is one of the main sources of ongoing discussions. Who will assume the burden of determining exactly when the audit will take place?

New Challenges Related to Auditing and Accounting Software

As the cycle changes, auditors and accountants will need software updates to accommodate the changes and their new workflows. There will be changes in both cloud audit and administration software. This adds further cost to the broader SMSF industry. Additionally, there has to be a learning period for the new software, implementation of integrations, and designing new workflows. This makes the end of the first three-year cycle especially chaotic.

How Can Auditors Stay Afloat?

With triple the amount of data to audit and increasing complexity, you can’t avoid automation. There are some other ways that automation can make auditing more cost-efficient. With these solutions, it may be possible to keep workflow at a manageable level.

Cloud-based software integrations and new automation tools will make it easier to manage the altered workflow. The software industry will adapt to create packages that support auditors and accountants. These solutions will likely involve the use of new workflow models. These will ensure the automation and collaboration benefits still get delivered under the new framework.

The health checks mentioned above would maintain the active relationship between auditors and their clients and would provide a new way to continue providing guidance to SMSF trustees.

A Final Word

Businesses that focus on SMSFs have had to go through significant changes lately. With this proposal, the changes would be self-contradictory. SMSFs are still subject to increased oversight in the form of event-based reporting. But with longer audit cycles, this oversight becomes more diluted. The consequences for non-compliance would be more severe with the delay. Most auditors hope that this proposal will never pass. But if it does, there are ways to adapt to the change.

For the moment, the best way to prepare is to start improving your productivity. Find solutions that offer streamlined access to documentation and accurate data. In particular, you must look for a solution that integrates well with other cloud-based solutions. If you want to learn about the ways automation can make your work easier, contact us at Cloudoffis.