One of the proposals in the paper is that SMSFs that experience key events in a particular year will not be eligible for a three-year audit and will be required to have their fund audited that year.

Hayes Knight director of SMSF services Ray Itaoui said the addition of these key events is a positive step but should also include SMSFs holding property.

“Property is an area where we tend to see a lot of potential room for manipulation of the financials and most of the time it is unintentional,” said Mr Itaoui.

“[For example], they may not have obtained an up to date market valuation or there could be a property that's leased to an unrelated business and the unrelated business is not paying commercial rent — these things need to be assessed every year.”

There also tends to be a lot of SMSFs, he said, who determine what the rent will be for a certain year and then continue to keep the rent at that level on an ongoing basis.

“The auditor's role is to identify if the market value has changed and raise that as an issue to be addressed and that normally prompts the trustees to reassess that valuation the following year,” he said.

“If the auditor isn't pressuring the trustees or suggesting that trustees make these changes or consider these valuations, it could be possible that you end up with property valuations and rental valuations not changing for three years and that could lead to problems.”

This is particularly an issue he said where outdated property valuations are used to commence a pension.

This could occur he said where an SMSF owns property and cash, has clean audit history and record keeping, has members in pension phase and accumulation phase and qualifies for the three year audit cycle.

“[For example], in year one, an increase in the property market is not reflected in the financials so the market value is incorrect. A pension is commenced on this amount and in year two and three the minimum pension withdrawn is based on this amount,” he explained.

“Auditor is involved after year three, identifies that the market value in year one is incorrect; as a result the minimum pensions drawn in year two and three are incorrect.”

Therefore, if the first year has the wrong value, he said, the accountant will then need to go back to the first year and then the second year and then the third year to rectify it.

“In practice, that's going to drive people crazy,” he said.